It was the deal many thought would never land. Scottish Power would not be rushed on deciding the location of, and who would build, its new 220,000 sq ft headquarters in Glasgow. Since the company was acquired by Spanish energy firm Iberdrola in 2007, the ultimate decisions have been made a long way from Scotland, at the parent company’s HQ in Madrid.
In an unusual deal in January, the energy company first bought the land it wanted for its new base, paying around £5m for the 1.4-acre former Elphinstone Tower site on the corner of St Vincent Street and India Street.
In a far swifter decision-making process, in the summer Scottish Power then chose a joint venture between Helical Bar and Dawn Group to develop the 14-storey landmark building.
The winners fought off stiff competition from rivals Abstract Securities, Muse Developments and HFD Group to win the instruction – Glasgow’s largest office prelet for 20 years.
A 20-year lease at around £25 per sq ft has been agreed, and work is due to start next year, with completion by late 2015.
The search for an investor to forward-purchase the scheme to the tune of £95m is well under way, with PRUPIM understood to be the frontrunner. Scottish Power and its adviser, CBRE, are pursuing opportunities, but no preferred bidder has yet been appointed.
The move was prompted by lease events at Scottish Power’s ageing office portfolio in Cathcart, Yoker and Falkirk. The company decided to consolidate and relocate its 1,500-strong workforce and appointed CBRE in April 2011 to help with the search. No stone was left unturned, says Ross Henderson, head of estates at Scottish Power. “We looked at seven to eight sites in the city centre and shortlisted three.” The Elphinstone site and one at 220 Broomielaw owned by Scottish Enterprise were both tipped to be frontrunners.
Henderson adds: “The St Vincent Street site was a better plot – a bookend plot. It was a landmark location for us, which marks the start of the city centre and is highly visible from the M8.”
As for why the energy company chose Helical and Dawn to build the scheme, Henderson says it was all down to the design. “Their design provided us with the best fit in terms of spec and efficiencies,” he says. “They had a synchronised approach, too. This is a big commitment to Glasgow and we wanted to get it right.”
Helical Bar is now seeking future redevelopment opportunities for Scottish Power’s existing offices.
Scottish Power chairman Ignacio Galan says: “This new development will ensure Glasgow remains home to Scottish Power’s UK HQ for the long term, being a hub for delivering £10bn of planned investment over the coming years.”
Office market Edinburgh
Despite the continuing subdued office letting market across the UK, Edinburgh has had a storming year. Many local agents predict that annual city centre take-up for 2012, underpinned by the BlackRock deal (see below) will exceed that of 2011 to reach about 500,000 sq ft, making it the strongest year for lettings in the Scottish capital since 2007.
GVA director Toby Withall says: “Edinburgh has fared better than Glasgow mainly because of take-up of grade A space in the city centre. For example, take-up in the second quarter of 2012 was around 135,000 sq ft, compared to Glasgow, which was zero.”
Head of Savills’ Edinburgh office, Keith Dobson, puts the rise in take-up down to impending lease events in 2014-2016. “We expect this to remain the tone for the next 12 to 24 months,” he says, “with requirements from resident professional businesses focusing on an increasingly limited supply of prime CBD office space.”
Edinburgh is unusual in having more grade A space than grade B. However, grade A availability has fallen significantly in the past 12 months. Space under construction for completion next year includes 26,300 sq ft at 145 Morrison Street, the 191,000 sq ft Atria development, also on Morrison Street, and 26-31 Charlotte Square.
GVA’s Withall adds: “We are seeing smaller occupiers keen to be around George Street and the east of the city due to public transport links and amenities. However, the city needs new office development activity to dovetail with anticipated increases in demand in two to three years’ time. Developments cannot merely be ‘magic-ed up’ – and with lead-in and build times being significant, action is required early in the new year if new schemes are to be delivered on time.”
Office market Glasgow
Scottish Power’s decision to relocate to St Vincent Street will undoubtedly have a ripple effect, attracting further attention to this part of Glasgow’s central business district. Campbell Hart, director at Jones Lang LaSalle, suggests the area could open up to 10 development or refurbishment opportunities.
Abstract Securities is planning to speculatively build its 170,000 sq ft StÊVincent’s Plaza office block across the street from Scottish Power. The scheme will be one of the few sizeable speculative office developments to start on site in the UK next year. Christopher McPherson, Abstract’s development director, says: “The Scottish Power deal reinforces the area and, of course, our site over the road.”
With Ryden appointed last month as joint agent with CBRE for the proposed 10-storey building, Abstract hopes to lure tenants with an attractive quoting rent of £23 per sq ft a sizeable discount on £27.50 per sq ft headline rents in the city. Tenants are yet to be signed, but a number of firms with varying requirements are circling the market.
With no new speculative office schemes due to complete in Glasgow for the next two years, GVA says there is now a danger that the remaining 260,000 sq ft of new, grade-A city centre space will run out.
GVA director Toby Withall says: “The supply of new grade-A stock has diminished considerably. At its peak in the last development cycle in 2008/2009, 880,000 sq ft was developed across 10,buildings in the city centre. The lack of any new development means the city is heading towards a shortage of space within the next 12-18 months.”
Several refurbishments will help to plug the gap, including Hermes Real Estate Investment Management’s recently completed £8.5m makeover at 151-155 St Vincent Street, close to the Scottish Power and Abstract sites. Other notable refurbs include Ignis’s redevelopment of the 50,000 sq ft Grosvenor Building on Gordon Street and Redevco’s George House in George Square.
According to JLL’s city centre take-up figures for Q3 2012, just 64,502 sq ft of space was transacted, reflecting a sharp drop from the Q2 figures, which totalled 103,725 sq ft. Average annual take-up stands at 750,000 sq ft but, says JLL’s Hart, this figure will not be reached. “This is one of the poorest years I can remember in terms of take-up,” he says. Hart predicts 25,000-30,000 sq ft of space will be let in Q4, bringing the annual take-up for this year to a disappointing 312,724 sq ft.
Key deals in Edinburgh and Glasgow this year
Edinburgh
• BlackRock’s acquisition of 80,000 sq ft in Exchange Place 1 from SWIP in June on a 15-year lease at around £27 per sq ft
• NHS Education for Scotland’s take-up of 37,275 sq ft at 102 Westport in August
• The completion of Skyscanner’s deal in July to take 25,000 sq ft at Quartermile 1
Glasgow
• The 35,000 sq ft sub-lease at 6 Atlantic Quay that HEROtsc took from RBS in January
• JP Morgan’s 20,741 sq ft sub-lease from Shell at 141 Bothwell Street in March
• Clydesdale Bank’s 14,967 sq ft sub-lease from NFU Mutual at 57 Queen Street in June
