Office take-up in Glasgow has increased year-on-year in Q3, while out-of-town demand has bolstered activity in Edinburgh, according to the latest figures from CBRE.
Glasgow office take-up reached 127,515 sq ft in the third quarter of the year, rising by 33% on 95,809 sq ft in Q2. It is also above an equivalent of 111,501 sq ft in Q3 last year.
Total office take-up for the year-to-date in Glasgow stood at 297,389 sq ft, below last year’s equivalent of 347,776 sq ft.
CBRE said while that figure was down year-on-year, the number of deals remained steady.
There was only one deal for new-build, grade-A space in the third quarter, represented by a 10,112 sq ft letting to SThree Management Services at Cadworks. Researchers said it showed the lack of new available grade-A space continues to be an issue in the city centre.
The largest leasing deal in Q3 was a 27,831 sq ft letting at Lucent on Bothwell Street to Pinsent Masons. Other notable transactions included 14,284 sq ft at 55 Douglas Street to Reach and Material Source taking 6,771 sq ft of space at 180 West George Street.
Overall supply is up slightly on last quarter, with some 2.8m sq ft of office space now available within the city. However, the vacancy rate for new, best-in-class grade-A office space in the city centre was just 0.36%, indicating a severely limited supply.
Glasgow rents grow
Prime rents in Glasgow stood at £39.50 per sq ft in Q3 this year, which CBRE said reflected positive rental growth. The increase was amplified by the lack of new development coming out of the ground, in addition to continued rising construction costs.
Rents for both grade-A and high-quality grade-B space are forecast to continue to climb further in the next 18 to 24 months.
Martin Speirs, associate director from CBRE in Glasgow, said “even the most negative of office agent within the city can’t deny the likelihood of reaching £40 per sq ft in the very near future”.
Speirs added: “This third quarter has shown once again the robust and resilient nature of the Glasgow office market; a market that even in tricky economic conditions still seems to have the ability to rebase and recover.
“While the office sector in general continues to be affected by current financial pressures, fuelled by inflation, high interest rates and a struggling pound, Glasgow’s office market has picked up the pace after an initial slow start to the year, and the strong Q3 results are testament to that.
“With its highly educated workforce, competitive office rents and vast office stock, Glasgow remains a destination that people aspire to live, work and play in, a massive reason so many office occupiers choose to take space in the city.”
Boom on the cards?
Speirs said there are around 1.9m sq ft of lease events set to trigger within the next 48 months, providing “reason to believe the office market should start to boom once more in the very near future”.
“The demand will most likely be for best-in-class, modern, ESG-spec, grade-A space,” said Speirs. “The city will look to developers to push on and increase office deliveries, as currently the city’s pipeline is constrained.
“The recent letting activity at 50 Bothwell Street is evidence of this. The historic sandstone building, rebranded as Lucent, has welcomed Pinsent Masons as its first tenant since commencing its extensive refurbishment. We expect further refurbishment and redevelopment in the city in the short term while new development remains constrained.”
Out-of-town boosts Edinburgh take-up
Take-up in the Edinburgh office market in the third quarter of the year totalled 164,281 sq ft, around 4.8% down from Q2’s 172,580 sq ft.
That brought the total take-up for the year-to-date in the city to 460,801 sq ft, 26% above the same period in 2022.
Out-of-town office buildings were popular in Q3, accounting for more than 60,000 sq ft of total take-up in west Edinburgh. This included Element taking 16,000 sq ft at 1 New Park Square and Pulsant securing 10,000 sq ft at 4/5 Lochside Avenue. The largest deal of the quarter was also in west Edinburgh, with Scottish Water Business Stream taking a sublease of 25,600 sq ft from Aegon at 1-3 Lochside Crescent.
The vacancy rate for new grade-A office space in the city centre remained low at 0.53%, indicating a limited supply.
Overall supply reduced slightly, with some 1.7m sq ft of office space now available within the city. However, grade-A new supply in the city centre increased, with 95,740 sq ft now available.
Prime rents in Edinburgh remained high at £43 per sq ft and are expected to rise further before the end of the year, primarily due to the limited availability of new grade-A developments and the demand for high-quality spaces driven by factors such as ESG considerations and employee wellbeing.
Tenant strategies diverge
Beverley Mortimer, associate director from CBRE in Edinburgh, pointed to a disparity in occupiers that are considering their future office space and leases “significantly further in advance than ever before”.
Mortimer compared live requirements in the market with lease events out to the end of 2026, with other occupiers displaying more uncertainty about their future workplace requirements and considering options as close to their lease event as possible, often leading to lease re-gears or extensions.
She added that a significant volume of requirements in the market are for “existing, good-quality, fitted space where the occupier can make savings on their fit-outs, therefore mitigating future risk in respect of occupancy rates and the ongoing return to the office”.
“Demand remains strong for new or best-in-class space, highlighted by those occupiers issuing their requirements significantly in advance of their lease events in order to secure the quality they want,” said Mortimer.
“Pipeline stock and development continues to move slowly, with a reluctance from developers to speculatively build or refurbish stock, despite prime rents now sitting at £43 per sq ft and growing.
“What we are now seeing is an increase in the volume of buildings being converted to alternative uses that were previously being considered as office refurbishments.”
Angela Lowe, head of advisory and transactions at CBRE Scotland, said: “Despite costs coming into sharper focus for many businesses, there is still a drive to secure good space to help staff return to work and, particularly if space-sizing, longer-term efficiencies can outweigh the costs of relocation. We anticipate a busy end to the year across the country given the amount of space that is under offer and viewing activity.”
To send feedback, e-mail pui-guan.man@eg.co.uk or tweet @PuiGuanM or @EGPropertyNews
Image © Artur Kraft/Unsplash
See which agents are doing the most deals in Glasgow >>
See which agents are doing the most deals in Edinburgh >>
