Office take-up in Edinburgh and Glasgow has been dented by the pandemic, while investment volumes have plummeted by 55.2%.
Investment deal volumes dropped to £361m in 2020 from £807m in the previous year, according to the latest figures from CBRE.
However total grade-A office take-up in Edinburgh during the year buoyed the market’s occupancy levels by square footage, after improving on the previous year.
Edinburgh’s take-up falls as supply rises
Office take-up in Edinburgh totalled 103,444 sq ft in Q4, declining by nearly 2.5% from the same period in 2019. Total take-up for 2020 in the city stood at 576,927 sq ft, down 4.3% on the previous year.
That said, the amount of grade-A space transacted grew to 371,792 sq ft during the year, up from 245,451 sq ft in 2019.
There were 91 lettings in Edinburgh during the year, compared with 149 in 2019. The largest of these was Baillie Gifford’s deal to take up 280,000 sq ft at M&G Real Estate and Qmile Group’s Haymarket scheme.
The amount of vacant office space in the city has grown to 1.7m sq ft, rising 2% on the previous quarter and a 26% increase year-on-year.
But grade-A supply in the city centre remains critically low at 560,214 sq ft, while new grade-A city centre stock is still at a premium with only 251,303 sq ft available.
Glasgow’s prime rents expected to rise
Take-up in Glasgow suffered in Q4, dropping by 65% from the same period in 2019 and down 55% on a Q4 average of of 244,178 sq ft. However, it was up by nearly a quarter on Q3 2020.
Total take-up in the city for the year stood at 451,428 sq ft, down 53% on 2019 and down 49% on the five-year average.
There were 86 deals over the year in Glasgow, down from 169 deals in 2019. The biggest deal of the year was at 220 High Street, where the Scottish government took more than 90,000 sq ft of office space at the start of the year.
The amount of empty office space in Glasgow has risen by 14% year-on-year to 1.8m sq ft.
Grade-A office supply remained “critically low”, with just 6,440 sq ft available in Glasgow.
While there is just over 1.4m sq ft of grade-A offices under construction, 81% of 2021 development completions have been either prelet or pre-sold to businesses including Barclays, HMRC, Opus, Virgin Money and JP Morgan with only 19% (266,509 sq ft) available for let.
Andy Cunningham, senior director at CBRE in Glasgow, said he expected take-up levels to remain below trend this year. However, he predicts prime rents will rise in the city this year as potential new occupiers “battle” for office stock coming to market, amid a “critical” shortage of available grade-A space in the city.
‘Blended’ working on the cards
Stewart Taylor, head of CBRE’s Scottish office agency business, said both cities produced a “much better outcome” than expected overall.
Taylor said: “In light of the temporary withdrawal of most occupiers from the market for nine months, unless triggered by a lease event, it’s a much better outcome than most commentators were expecting in the summer.
“After the initial shock of Covid and some sceptics citing the end of the office as we know it, evidence is actually pointing towards a strong bounce back with the vast majority of occupiers concluding that a return to some form of blended working will be the new normal, and they want that to be in high-quality office space.”
Steven Newlands, executive director in CBRE’s investment team and head of the Edinburgh office, said: “A heavy reliance on overseas investors and an inability to travel has been a barrier to transactions but an easing of travel restrictions will remove this barrier and facilitate activity.
“Despite the enormous challenges faced by the offices sector, headline rentals held up well in 2020, and while we anticipate a subdued recovery in the first half of the year. The low levels of supply in Edinburgh and Glasgow are likely to underpin a return to rental growth, pushing up values and increasing the attractiveness of some assets.”
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