A lack of new development and Grade A space in Glasgow are key factors in a surge of flexible workspace operators entering the market in the past year according to newly published research from flexible workspace advisors GKRE.
The lack of new development over the past few years has been partly responsible for the vacancy rate for offices in the city centre falling to 9.9% and rents reaching record levels of £32.50 per sq ft for new Grade A offices and £30 per sq ft for the best refurbished space. The only speculative development currently being marketed is Cadworks, a 94,000 sq ft development by FORE Partnership, which is due for completion in 2020.
As a result, national flexible workspace operators including Regus, Spaces and Orega, as well as local independents are helping to fill the void created by the lack of available office space and providing occupiers with the flexibility they are increasingly demanding.
The growth of the flexible workspace sector in Glasgow is the result of its vibrant economy. In 2014, Glasgow negotiated the biggest city funding deal in UK history – giving the city freedom to spend public money in order to generate growth. Glasgow was able to lock in capital investment of over £1.3bn into the city-region over 10 years.
Five years later all 27 projects from the original deal have been selected, six have been completed and most other are being developed. This includes The Avenues Concept, an investment by Glasgow City Council into infrastructure and public realm intended “to make the city more attractive, people-friendly, and economically competitive”. The city deal is set to bring an estimated £3.3bn of private sector investment in to the city over the next 20 years.
The positive outlook for Glasgow’s economic growth has coincided with a corresponding rise in office space lettings in 2018, with a total of 1,425,419 sq ft of space let to new tenants, representing a 127 per cent rise on 2017 and more than double both the five and ten year averages. The past decade has also seen Glasgow benefit from the third highest level of commercial property investment in the UK.
The growth in demand for commercial property has prompted major building developments, including Buchanan Wharf, which will extend the commercial city centre’s boundaries as Barclays introduces its flexible campus to the city in a 680,000 sq ft development.
To profit from the growth in flexible workspace, GKRE noted that a growing number of property owners are embracing joint venture management agreements with operators, allowing them to utilise the expertise of the operator while reaping the rewards made available by flexible workspace. A recent illustration of this is flexible office operator Orega took 29,929 sq ft of space at 9 George Square, on a 10-year management agreement with the building’s owner EPIC.
GKRE predicts that in order to capitalise on the predicted growth of flexible workspace in the next five years commercial property owners will increasingly enter into these joint venture management agreements with operators in Glasgow and other cities in Scotland.
Douglas Green, Director at GKRE, said: “Glasgow is one of the most vibrant flexible office markets in the UK. Although its central business district is thriving, a lack of speculative development has seen rents rise and an acute shortage of Grade A stock. Flexible workspace operators have stepped in to help fill the void and provide occupiers with the flexibility they now demand. A feature of this development is the rise in the use of joint venture management agreements and given the vibrancy of Glasgow’s flexible office sector, we expect many more operators and landlords to form similar partnerships in the years to come to capitalise on the sector’s strong growth.”