Some more cynical comments about the decision to locate the Green Investment Bank headquarters in Edinburgh suggest that is wasn’t just the finance and investment skills base which secured the deal, and that politics played its part. Give Edinburgh the prize it wouldn’t have had if Scotland was independent, so the cynics suggest.
Those same cynics probably raised their eyebrows and nodded knowingly when details of the GIB’s building needs went to the market a couple of weeks ago, indicating that a flexible lease with a break at 3-5 years was on the list of requirements. A quick get-out should there be a vote for independence?
Whether you think this overly negative or not, GIB’s presence in Edinburgh carries with it a political weight that might just prove fruitful for future office requirements.
There were a lot of envious eyes on the Scottish capital when the decision was announced in March, as the city had fought off competition from 31 other towns and cities around the UK, including Manchester, Leeds and Liverpool.
On paper it is a small, insignificant requirement of 4-7,500 sq ft accommodating 35-40 people. But it has nonetheless got the market excited. GIB is a high-profile, desirable occupier to snag.
Edinburgh, and Scotland as a whole, has already put itself on the world map when it comes to green energy, attracting investment such as Mitsubishi Power Systems Europe’s £100m offshore wind research and development centre. And First Minister Alex Salmond’s commitment to generating the equivalent of all Scotland’s electricity from renewable sources by 2020 is part of green policy targets that are ahead of any other EU country.
Some £750m of green energy projects came online last year, but the potential development pipeline could be as much as £46bn according to the Scottish Government.
“If you have a cluster, whatever industry it is, that cluster lobbies for its best interests, and having the Green Investment Bank in Edinburgh allows the renewable energy industry to lobby,” says Ian Cody, associate director, Hermes Real Estate.
How quickly the Scottish capital will see any benefits of the GIB in terms of inward investment from new companies or funding from the bank itself is difficult to tell. Those with a glass-half-full outlook will say that the flexible lease requirement is to accommodate potential future growth. For all the others in the short term there is the prize of the requirement and who might land it.
What type of space might the Green Investment Bank take?
Opinions are divided about where the Green Investment Bank will end up in Edinburgh. Recruitment is apparently underway and word on the street is that the bank is eager to be up and running and in situ by the end of the year.
All occupiers have a wish list and have to compromise on some things and that is what is causing different opinion among property experts. The brief is for energy efficient space of 4-7,500 sq ft in central Edinburgh.
“A minimum EPC rating of ‘C’ will knock a lot of secondhand space off the list,” says Ben Reed, director, Jones Lang LaSalle.
However, grade-A space may prove problematic because of the rental level it commands and landlords will inevitably want a longer commitment on the lease.
“There are not many buildings of the right quality and that might make them change their mind about taking a longer-term lease,” says Angela Lowe, partner, Cushman & Wakefield.
Additionally, is taking grade-A space going to send out the right message? “They will be lambasted if they go into swanky new offices at a time of austerity but they will need to be in a building that befits the bank’s seriousness,” says Ian Cody, associate director of Hermes Real Estate.
Should the green bank be setting an example and be going for refurbished space or, asks Lowe, should they not rush into a big move and take space, initially, from the council? Whatever the GIB decides, it is sure to raise eyebrows and will certainly disappoint some. Edinburgh’s landlords will know how the UK cities, who vied for the HQ and lost out, felt.
Refurbished space the answer?
Grade-A stock in Edinburgh is down to 2% of supply and with development funding virtually non-existent (see feature p75), the market is relying on refurbishment and prelets to boost supply and take-up figures this year.
London-based Delancey is one developer that has seen a gap in the market, and is refurbishing Orchard Brae House on Queensferry Road with some tenants in situ. When the building is formally launched on completion in September it should have about 65,000 sq ft of its 106,000 sq ft available.
Delancey bought the long-neglected building for a song – £5.9m compared to the £24m price tag paid when the market was in its prime.
“We looked at the Edinburgh market and saw that there was a pinch point in terms of supply and a disparity between grade-A stock coming through and the secondhand, fag-end space at the end of its lease,” says Adam Goldin, acquisitions executive, Delancey.
It has already attracted Sopra, an IT consultancy, which has taken a 15,000 sq ft prelet and other refurbishments in Edinburgh have also proved a success with tenants. But will this encourage others to take the plunge?
One attractive prospect for developers looking to refurbish is the value that can be added by improving a building’s green credentials. Apex 123 on Haymarket Terrace is a good example. It is being refurbished by Catalyst Capital and Jones Lang LaSalle associate director Craig Watson, agent on the scheme, says two of the Apex buildings had EPC ratings of G and F but this has been raised to C and C+.
For comparison, the Green Investment Bank (see panel) has a minimum EPC rating of C for its requirement. Rents at Apex 123 and Orchard Brae House are expected to be in the high teens compared to high £20s for grade-A space.
“Other London property companies are asking questions about the market locally and the hope is that they will be acquisitive,” says Watson.
Whether they will get a bargain like Delancey is questionable. “Prices are hotting up for these opportunities so people are already talking about a lack of supply,” says Angela Lowe, partner, Cushman & Wakefield.
Office building 44 Torphican Street is on the market with a lease expiry in 2015 and is the building cited by most as the next big refurbishment opportunity. No doubt the market will be keeping an eye on who snaps it up.
Is talk of lease events in 2014/15 as a source of future demand and the return of prelets overblown?
“I do think prelets are wishful thinking. Companies should be looking at prelets but getting a corporate to put pen to paper in a recession is incredibly hard.”
Mark Jones, director, DTZ
“We will see more and more preletting activity as grade-A space is sitting below 2% of the total and there is interest in the remainder of the space.”
Ben Reed, Jones Lang LaSalle
“I think we will see some prelets. There is not a history of pure prelets but there are developers who are more than capable of delivering them.”
Angela Lowe, Cushman & Wakefield
