Property people are fond of paraphrasing Kevin Costner’s line: “If you build it, he will come,” from the 1989 film Field of Dreams. Yet in Glasgow the quote is spot on: developers built and occupiers have come.
After completing this year, the three major speculative buildings of the last property cycle – 110 Queen Street, 1 West Regent Street and St Vincent Plaza – which total 450,000 sq ft, are now 73% let or under offer, according to Bilfinger GVA director Alison Taylor. “Testament,” she says, “to the strong occupier demand in Glasgow at present.”
Just last week Abstract Securities and professional services firm KPMG confirmed what the market had been whispering about for weeks: that KPMG has taken 39,705 sq ft on the top three floors of Abstract’s 172,280 sq ft St Vincent Plaza. A 15-year lease without break (with an option to extend) from January 2016 has been agreed, at a rent said to be in the region of £26 per sq ft.
KPMG will relocate 350 of its staff from existing offices at 123 St Vincent Street when it moves in autumn 2016.
Christopher McPherson, development director at Abstract, sums up the mood of the office market in Glasgow: “Occupiers in Glasgow are waking up to the fact that there are no new schemes which can be delivered in the city until at least 2018/2019, and that assumes a start on site today. Existing grade-A offices are disappearing fast.”
Added to that, there are plenty of total active requirements, ranging from 400,000 sq ft to 800,000 sq ft, despite a quieter first half of the year compared to 2014. So with grade-A space diminishing and rents hitting £31 per sq ft this summer (engineer WSP at 110 Queen Street) is now the time for developers to be cracking on with the next wave of speculative office development in Glasgow?
The answer is a resounding yes.
Bruce Patrick, investment director at Savills, says: “There is a race on to see who will have the guts to put the next spade in the ground.”
At the moment that race is between two frontrunners: HFD Group and Titan Investors. While the market generally believes HFD’s Bothwell Exchange on Bothwell Street will be the first to come forward, it looks like Titan Investors could just pip it at the post.
News broke last month that Morgan Stanley may be close to agreeing a prelet for a new 150,000 sq ft Glasgow headquarters, doubling its presence in the city.
The investment bank is in advanced talks with HFD Group. If a deal is signed – hopefully before Christmas – a lease of more than 10 years is anticipated to kick-start the development. It would be one of the city’s largest occupational deals of the past decade.
Bothwell Exchange includes 180,000 sq ft of offices, a 320-bedroom hotel and ground floor leisure on the south part of the site, and a planning application has been submitted for more than 200,000 sq ft of speculative offices on the northern part of the site. Developer HFD Group is likely to build out the whole of the site in one go. Subject to receiving consent next March, Bothwell Exchange could practically complete at the start of 2018.
Stephen Lewis, managing director at HFD Group, refuses to comment on a potential letting, but says now is the time to start the city’s next wave of development.
“There is a perfect storm. A perfect supply/demand imbalance and clearly a development lag in terms of timescale. So any developments which start now should do well,” he says.
It appears that Titan Investors shares Lewis’s sentiment. Titan is pressing the button with both of its office developments – the 180,000 sq ft Broadway Two, now renamed Broadway Central in Cowcaddens and the 95,000 sq ft New Exchange building on Cadogan Street (see Glasgow pipeline, above).
The £80m Broadway Central has just won consent. Work will start on site in Q1 2016, with completion due in late 2018. Meanwhile, funding is now in place on the £50m New Exchange scheme, where Bilfinger GVA has been appointed to advise on the redevelopment.
BGVA’s Taylor says: “Demolition is expected to start in Q1 2016 with delivery in mid-2018. We are now starting preletting discussions with occupiers.”
Bothwell Exchange, Broadway Central and New Exchange will all compete for tenants, just as their three predecessors did in the last development cycle.
Meanwhile, a joint venture between BAM and Taylor Clarke is mulling over its options on the Atlantic Square site on York Street, which has planning consent for two buildings totaling 293,000 sq ft. The duo is now deciding whether to press ahead with speculative development.
With Glasgow being the only one of the UK’s Big Six regional centres with no office schemes under development (Manchester and Birmingham have circa 1m sq ft each) and 2m sq ft of lease events due between 2017 and 2022, there should be more than enough demand to go around.
Cushman & Wakefield partner Andy Cunningham is hopeful that during this year’s final quarter, take-up could hit 200,000 sq ft, but says there will still be vacant grade-A space when people come back to their desks in January.
However, that space may not be around for long. Refurbishment could well be the way forward after that.
Out of town: Back in fashion?
Market observers believe development outside central Glasgow may be about to enjoy a renaissance.
Savills’ Bruce Patrick says: “The city centre is going more westward than eastward and the time may have come for out-of-town office development to become viable again.”
Patrick believes further development could take place at Finnieston, at the Skypark development, or at Pacific Quay. He says: “I could see something happening there. I also think that we may well see office, R&D, high-tech and incubator space at Glasgow University.
“It is not just about the city centre any more. There are good locations on the west side of the city that are ripe for development.”
