by Terry Cunnew
It is widely held that Dundee has now reached the stage at which, after a long hiatus, there is a need for some new office development. The problem is finding someone to fund it.
There is the inescapable fact that for a long time Dundee showed little, if any, rental growth, with the result that the funds are understandably cautious.
However, the reality now is that there is no new office space currently available in Dundee city centre, and not a lot of secondhand space either.
Good modern space is fetching some £7 per sq ft to £7.50 per sq ft, while the only new space on the market — a building out of the centre on the Technology Park — is apparently being quoted at £8 per sq ft. On that basis, it would appear that the growth potential exists in the city centre — all that is needed is a building to prove it!
It is not a matter of there being no sites available for development — the SDA has earmarked part of its site at the railway station, known as site 6, for office development, for example. And although it can be argued that that is not a traditional city-centre location, it is worth noting that Tayside Regional Council’s headquarters are in the same general area.
What is more, says William Toft of J & E Shepherd, there is a pent-up demand from the private sector, for instance from legal firms who have seen amalgamations and in some cases are now of a size to be in the front line for taking new space.
But the danger is that, in a market of Dundee’s size, it is so easy to put things out of kilter. Should a developer secure his funding and put up, say, 25,000 sq ft which is then taken up by one legal firm, who will in turn release almost the same amount of secondhand space in the town.
And that is going to be the sort of space which will not attract the next generation of users.
So that space is likely to be split in order to let it, sending shock waves down through the market in a way that would not happen in a larger sector.
However, since nobody has yet carried out such a development, it is purely speculation as to what its impact might be.
What is certain is that, in the absence of new supply, the shock waves have been moving up the office market, at least so far as rents are concerned. As a result, Victorian space which would have made perhaps only £2 per sq ft two years ago is now, says William Toft, fetching £4 to £4.50 per sq ft.
As for refurbishments, there has been little activity since the opportunity so rarely arises within what is, after all, a tight market in which it is not always easy to secure possession in order to refurbish.
In the view of George Nesbitt at D M Hall, it is important to bear in mind that, where offices are concerned, Dundee is very much a localised market with demand coming primarily from local professionals, many of whom are quite content with floors over shops.
There are a few purpose-built office blocks, but these tend to be small by national standards, while large modern (not new) buildings are exceptional.
However, says Mr Nesbitt, there are developers who are interested in getting a site in Dundee, generally because every other town in Scotland has shown a demand for a modern office scheme.
The argument that such developers adopt is that Dundee is Scotland’s fourth biggest city, and therefore the demand should be there, waiting to be tapped.
On that basis, such developers are prepared to go ahead whether the demand is proven or not, so long as they can get the right site.
Gerald Burnett at Lickley Proctor & Burnett, says that the office market has been slow in Dundee. There is, for example, the Nethergate Centre which was built by Standard Life about eight or so years ago.
It is now virtually fully let, but it was very slow to fill.
Graham & Sibbald are managing agents for the building, where there has been talk of a quoting rent of £9 per sq ft, a figure which many surveyors in Dundee feel is a little on the strong side.
But at the same time it is true that there is very little modern space available in the city and, in Gerald Burnett’s view, although there is not demand around for major new office development, there is a demand from local businesses who are prospering and who want larger and/or better space.
