TAKE-UP for the Glasgow office market totalled 135,155 sq ft in the second quarter of the year, which is up 9.6% from the second quarter of 2021, showing the market continues to recover from the impact of the pandemic.
Total take-up for the year to date stands at 230,651 sq ft, 16.5% up against the same period last year. Furthermore, Glasgow’s twelve-month rolling average has increased, with 635,685 sq ft transacting in the past year, representing an increase of 61.88% against the previous twelve months.
Glasgow witnessed two deals in the past three months that surpassed the 20,000 sq ft marker: Ovo Energy taking 33,905 sq ft at the recently complete Cadworks and serviced office providers WIZU letting 24,350 sq ft across three floors at 2 West Regent Street. Furthermore, there was more activity at ONYX on Bothwell Street with drinks manufacturer Diageo agreeing to let 12,438 sq ft across two floors.
Office supply continues to rise within the city, but crucially best-in-class Grade A space remains at a premium. Out of the 2.895m sq ft of office space currently available in the Glasgow market, only 134,194 sq ft of it is considered Grade A, representing just 0.59% of all Glasgow office stock.
With occupiers continuing to seek buildings with strong ESG credentials, it is expected that much of the future demand will be for newer Grade A space. This will result in prime office rents within the city surpassing the current rate of £35.25 per sq ft by the end of the year. This positive rental growth will be amplified by the lack of new development coming out the ground, in addition to continued rising construction costs and inflation. However, The Grid, CEG’s 277,426 sq ft landmark development in Glasgow’s city centre, is now earmarked for an on-site start as early as August of this year and will provide the next phase of newly built Grade A space in the city.
This squeeze on available new stock will inevitably force many occupiers to turn to second-hand space, and we are already seeing many landlords invest in and refurbish their assets in order to appease the demand for modern, sustainable business space. Currently 50 Bothwell Street and 200 Broomielaw are undergoing extensive refurbishment projects with completion expected before the end of the year. As a result, Grade B rents are likely to rise at a faster rate than was first predicted at the start of the year.
Positive rental growth in both Grade A and Grade B office markets will be an attractive proposition to investors, and it also highlights just how well Glasgow has recovered post-pandemic as it continues to be a profitable market. £24.1m worth of stock has exchanged so far this year, with further deals under offer and a significant amount of capital expected to transact by the end of the year. Prime net-initial yields for Grade A offices remain attractive at 5.00%.
Martin Speirs, Associate Director from CBRE in Glasgow, said: “We are entering an interesting time in the Glasgow office market with Grade A supply continuing to diminish and demand for best-in-class space remaining. Occupiers understand now more than ever the importance of having not only high-quality office space, but space that offers their staff, and their business, the focus on ESG that is being demanded at board level. The war for talent is becoming apparent and only with engaging and exciting office space will occupiers succeed in attracting and retaining their best staff, but also, importantly, manage to encourage them back into the workplace.”