Observed holding a number up, of necessity (5)
I believe the answer is:
needs
'of necessity' is the definition.
('needs' can be a synonym of 'of necessity')
'observed holding a number up' is the wordplay.
'observed' becomes 'seen' ('seen' can be a synonym of 'observed').
'holding' indicates putting letters inside.
'a number' becomes 'd' (D is an example**).
'up' says the letters should be written in reverse (in down clue: letters go upwards).
'seen' enclosing 'd' is 'sdeen'.
'sdeen' back-to-front is 'NEEDS'.
(Other definitions for needs that I've seen before include "'..... must when the devil drives'" , "Essentials" , "necessity once" , "Is desperate for" , "What is required" .)