55 Douglas Street, Glasgow

LEADING real estate advisor CBRE has released its latest figures on the office markets in Edinburgh and Glasgow, revealing a positive start to 2020.

Take-up in Edinburgh during Q1 saw a significant increase on the previous quarter – rising 35% to 130,640 sq ft.

Although 32% below the five year average of 193,603 sq ft for Q1, this can be partly attributed to shortage of supply across the market which continues to squeeze headline rents and incentives.

There was 23,503 sq of Grade A city centre take-up across three deals, the most significant being the letting of 14,641 sq ft to Smartsheet at Quartermile 3.

The largest city centre letting saw the Financial Conduct Authority (FCA) take 16,128 sq ft at Quayside House, while the largest deal of the quarter overall was the letting of 17,597 sq ft of space at Shawfair Park to People’s Energy.

Stewart Taylor, head of CBRE’s Scottish office agency business, commented: “2020 started strongly, with a significant increase in take-up on the final quarter of 2019. However, the final few weeks understandably saw a drop in lettings which affected the overall performance of the quarter. We are aware of a number of deals in Edinburgh which have been placed on hold due to the coronavirus pandemic, although the narrative is that these deals will be picked-up again after lockdown.

“This is undoubtedly a challenging time, and the situation continues to evolve daily. Moving forward, we expect Q2 activity to be dominated by regears.”

In Glasgow take-up for the city centre office market was down on recent years at 89,388 sq ft for the first quarter of 2020.

The largest transaction to complete was insurance firm Sedgwick’s letting of 18,268 sq ft at Ardstone Capital’s Sentinel building.

Lettings in the creative industries sector included tech firms Continuity2 securing 10,000 sq ft at 34 Miller Street and Class4Kids taking 7,844 sq ft at 180 West George Street, while public sector deals saw Skills Development Scotland occupying 6,400 sq ft at Monteith House.

The drop in deals and take-up is not solely based on coronavirus and can be partly attributed to the lack of Grade A supply in the city, which continues to restrict larger transactions.

With only 6,000 sq ft of Grade A space, representing an availability rate of 0.04%, occupiers are having to consider pre-let opportunities at key developments under construction.

New build Grade A developments like 2 Atlantic Square, due to complete in 2020, and 177 Bothwell Street in summer 2021, will now be delayed due to the current restrictions.

This will however, be improved with the completion of a fully refurbished 55 Douglas Street, due for completion in Q2 2020.

Total supply within the city has fallen and now sits at 1,060,982 sq ft, down nearly 13% from Q1 2019. With stock sitting at just over 13.4m, the Glasgow city centre office market currently has an availability rate of just 7.9%.

Alistair Urquhart, a director at CBRE in Glasgow commented: “The shortage of Grade A availability continues to affect Glasgow’s office market. Prior to COVID-19, the underlying demand for prime office space in the city remained strong and we have yet to understand the full impact. However, the inevitable delays to the development pipeline will result in further constraints on supply, especially for larger occupiers, who already have limited options available to them.

“The large Grade A deals that have come to define Glasgow over the past few years have somewhat stalled, and there is real pressure now on landlords to bring forward new development. Therefore, we are likely to see the continuation of large pre-lets throughout 2020, which will help compensate for the short-term decrease of small to medium sized lettings.

“Moreover, with the lack of new supply being launched to the market at the moment, it is unlikely the short-term drop in demand will result in a drastic increase of the availability rate in the short term. This should however, put positive pressure on rents within the city and we expect both prime and secondary rates on office space of a significant size to continue to grow.”