With high demand, low supply and little new development underway, now is the perfect time to invest in property in Scotland, according to Lambert Smith Hampton’s (‘LSH’) Scotland office market report.
The office market remains buoyant across both of Scotland’s biggest cities, with an enduring strong appetite for good quality space, which is particularly apparent in the high- profile government pre-let by the Government Property Unit (GPU), which has taken space in Edinburgh (181,307 sq ft) and is set to take a pre-let in Glasgow (180,000 sq ft).
Aberdeen, by contrast, has ample stock across the city, and has seen an improvement in take up this year, compared with the past 2 years.
Despite these high-profile deals with the GPU, second-hand space has dominated city centre transactions in Glasgow, with grade A space accounting for only 22 per cent of take-up in this period.
Large city centre transactions have taken place with the Student Loans Company (40,853 sq ft lease at the Europa Building) and Mott McDonald (34,515 sq ft across two floors at St Vincent Plaza). The scarcity of grade A space available has boosted the opportunity to reposition existing buildings in the city centre via high-quality refurbishment.
Supply in Edinburgh is also in decline and now stands at its lowest level since 2010, with new schemes at least 24 months from completion and the majority of the space currently under construction, already committed. Given the number of unsatisfied large-scale requirements in the market, and the lag in new developments becoming available, it is
anticipated that rents in the city centre could reach upwards of £34.50 per sq ft by end of 2018, with incentive packages reducing further during this period.
Speculative development has also been limited outside of Edinburgh, resulting in a lack of standing stock. This is exacerbated by an acute shortage of grade A accommodation in the out-of- town market with the only available space located at Lochside View and Ocean Point, which is likely to restrict further activity moving forward.
Aberdeen’s strong supply of grade A properties, in contrast to Edinburgh and Glasgow, is set against a diminished level of demand, suggesting that market conditions will remain challenging in the short term. While a further 150,000 sq ft of take-up is anticipated prior to year-end, with 300,000 sq ft of speculative new office space to be completed at Marschial Square and The Silver Fin in H2 2017, the 2017 performance will remain below the 10- year average, despite Total’s recent relocation to a 130,000 sq ft facility in Westhill.
Ewen White, Director – Capital Markets, Glasgow, LSH said: “The substantial increase in requirements is a reflection of the significant yield discount available in Scotland, which is
not commensurate with the perceived political risk. Each of the key Scottish markets have seen sizeable assets change hands during 2017, particularly in off-market transactions, with Glasgow currently in top spot ahead of Edinburgh and Aberdeen in terms volume of deals.”
Aasia Mohammad, Director – Business Space, Glasgow, LSH added: “Appetite for good quality office space in Edinburgh remains prevalent, however current availability is the lowest of any of the key Scottish markets. The severe lack of space, particularly grade A, is likely to restrict activity moving forward, with the absence of new-build delivery expected to sustain upward pressure on headline rental levels and the tightening of incentives, both in Edinburgh city centre and out-of- town.”
“Thanks in no small part to the GPU’s and other public sector bodies’ commitment, take- up for the year as a whole in the Glasgow office market is expected to comfortably exceed the 10-year average. While prime rents are likely to remain stable, incentive packages on larger floorplates will tighten due to pent up demand, and speculative development is necessary if prime rents are to move forward in 2018. With high demand for good quality refurbished properties, we expect more landlords to invest in refurbishing their second-hand stock.”