LISTEN: High levels of take-up and occupier demand have made for strong regional office markets in Scotland, according to research by CBRE.
Edinburgh
The advisory firm’s H2 2015 Office Market View report showed the highest annual take-up in Edinburgh since 2004 at 924,136 sq ft.
The H2 figure, 520,152 sq ft, was boosted by three transactions over 50,000 sq ft to FanDuel, The University of Edinburgh and JP Morgan.
Demand also led to pre-letting activity in the capital this year. Following the 58,500 sq ft FanDuel deal at Quartermile, the remaining 70,000 sq ft was pre-let to software firm Cirrus Logic.
Total office availability at the end of 2015 was 1.44m sq ft, 30% lower than at the end of 2014 and 40% below the five-year average.
Of the total available space just 10% is grade-A, city centre accommodation.
Speculative development in the pipeline includes Hermes’s 122,000 sq ft Capital Square and M7G’s Quartermile 3.
Prime rents increased to £31 per sq ft and are expected to keep rising in grade-A and grade-B refurbished stock.
Investment transactions in the Edinburgh office market totalled c.£380m in 2015, marginally ahead of the previous year and pre-recession levels.
The firm forecasts limited supply, healthy take-up, a development lag and predicted rental growth will mean current yield levels are sustainable for the foreseeable future.
Glasgow
The Glasgow office market performed consistently in 2015, with a total take-up of 562,290 sq ft, 6% on the five-year-average.
Audrey Dobson, senior director in CBRE’s national office agency team in Glasgow, said: “While there are several office refurbishments under way, it is disappointing that no speculative developments have commenced in the city. If occupier demand continues at current levels it is likely that occupiers seeking grade-A floorspace will be forced to go down the pre-let route.”
Grade-A take-up accounted for 36% of overall figures but supply is diminishing fast with speculative developments St Vincent Plaza, 110 Queen Street and 1 West Regent Street having already let a significant amount of space.
With prime rents in Glasgow now standing at £29.50 per sq ft, lack of supply is predicted to stimulate rental growth.
Glasgow’s office investment activity in 2015 totalled just over £353m, the highest level seen in the city since 2010, dominated by UK and overseas investors, a trend set to continue with a number of large assets, including CityPark, under offer to overseas investors.
Aberdeen
Office take-up in Aberdeen in 2015 tumbled to 399,290 sq ft, the lowest since 2010.
Unsurprising given the weakening price of Brent Crude oil, which fell from $109 per barrel at the end of H2 2014 to $37 by the end of 2015.
Three large pre-let transactions took place in H1 2015, all in out-of-town locations: Anderson Anderson & Brown and Lloyd’s Register committed to 45,000 sq ft and 100,000 sq ft respectively at Prime Four Business Park and KCA Deutag acquired 70,000 sq ft at City South.
The falling oil price had a clearer impact on occupiers in H2, but some occupiers are using the opportunity to move to better quality new grade-A space, according to Derren McRae, managing director at CBRE Aberdeen.
He said: “While the drop in oil price has naturally impacted on the general demand for office space, occupiers continue to explore opportunities to relocate to more efficient and higher quality accommodation.
“In recent years tenants have had no alternative but to commit to pre-let developments; however, occupiers with requirements or upcoming lease events are now able to consider a variety of good quality ready-to-occupy options or space within the grade-A speculative developments which are nearing completion.”
Availability at the end of 2015 increased to 1.8m sq ft, 78% of which is second-hand grade B stock, and there was 397,731 sq ft of office space either newly completed or under construction. Given present market conditions, no speculative development is expected to start in 2016.
Prime rents in the city have remained at £32 per sq ft, and are expected to remain at this level.
Activity in the Aberdeen investment market continued to be subdued in H2 2015, reflecting market sentiment on the back of low oil prices and a reduction in occupier demand, with 2016 also forecast to be subdued until market conditions improve.
To send feedback, e-mail Shekha.Vyas@estatesgazette.com or tweet @shekhaV or @estatesgazette
