Aberdeen, Edinburgh and Glasgow Offices

A recent report from Savills on the Scottish office market, saw lettings reach 1.4m sq ft for the first half of 2017, 20% above the five year half year average.

Savills say that the Aberdeen office market has seen increased letting activity in recent months driven by the increased oil price. Take up during the first half of 2017 reached 238,000 sq ft, exceeding the 2016 full year level. 78% of take up was accounted for by the engineering, oil and utilities sector, up from 17% last year.  Nonetheless there remains ample supply of office space in the Aberdeen market, which has fallen just 3% from end 2016 to stand at 2 million sq ft. Office schemes at the Silver Fin building and Marischal Square are both expected to complete during the second half of 2017, providing 287,000 sq ft of additional speculative offices.

Edinburgh saw the strongest quarter of take up on record during the second quarter of 2017, according to Savills, pushing the half year total to 772,000 sq ft, which was 50% above the five year first half average.
Total city centre take up at half year reached 541,000 sq ft. This was largely driven by the GPU (Government Property Unit) signing a pre-let on 180,000 sq ft of space at New Waverley. Other large scale deals included Computershare signing a pre-let for 41,000 sq ft of space to be refurbished in Four North and Burness Paull regearing on 27,000 sq ft at 50 Lothian Road. Other deals in the out of town market included Standard Life signing for 31,000 sq ft at South Gyle Broadway. Grade A available office space remains scarce in Edinburgh, with only 313,000 sq ft of space remaining,

Glasgow saw office lettings reach 434,000 sq ft across the city centre and out of town markets during the first half of 2017, in line with the five year first half average. The largest deal was the Student Loans Company’s 41,000 sq ft letting of Europa House. Despite modest take up figures for the city centre market, the out of town market saw a number of engineering companies take space, which has accounted for 25% of the wider market take up this year.With a number of large deals under offer in the city centre, such as DWP, take up in Glasgow looks set to reach Savills forecast of 600,000 sq ft for the full year.

Metropolis has published 60 business leads on Aberdeen, Edinburgh and Glasgow occupiers with requirements, looking for office space over the last six months. It is also reporting on nearly 100 office tenants that are ‘potential movers’ as they approach decisions on whether to renew leases or relocate in 2018 and 2019.

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The Magnificent Seven

A recent report from Savills reveals that for a fourth consecutive year, UK regional city office take-up has surpassed the long term average of 9.1m sq ft. Total take-up in 2016 reached an impressive
9.6m sq ft, despite a year of political uncertainty.

The final quarter of regional office take-up in 2017 reached 2.4m sq ft, the strongest quarter since Q2 2015. Roughly the same level of occupational demand was recorded during the first half and second half
of the 2016, with no post referendum slowdown evident.

The most active of the seven major UK cities in 2016 were Bristol and Cardiff, which recorded take-up improvements of 42% and 10% on 2015’s levels respectively, with Cardiff achieving its highest level of take-up in 15 years. A key driver of occupational demand in these cities was the Government Property Unit (GPU) requirements for consolidating public sector bases into regional hubs. Savills expect the GPU to be the key contributor to acquisitions over 100,000 sq ft in 2017 in cities including Birmingham, Manchester, Leeds, Edinburgh and Belfast, during 2017.

The most active business sectors during 2016 were the insurance and financial services sector, accounting for 1.2 million sq ft (15%) of space taken, which marked a record year. Key deals include: Swinton
Insurance taking 165,000 sq ft at 101 Embankment, Manchester, whilst MotoNovo Finance took 72,000 sq ft at One Central Square, Cardiff.
The tech sector remained an important contributor to take-up during 2016 and accounted for 20% of the number of transactions. This sector has traditionally contributed to the smaller end of the market, but also included Co-op Digital acquiring 45,000 sq ft of accommodation in Manchester, while Micro-chip designer, Cirrus Logic’s 70,000 sq ft letting at Quartermile, Edinburgh marked the largest regional tech deal last year. Edinburgh witnessed the highest proportion of tech take-up of all the UK cities.

Metropolis ran 53 medium and large office requirements for Birmingham in 2016, totalling 1.4m sq ft; the totals for other cities were Bristol 66 requirements and 1.6m sq ft; Cardiff 35 requirements and 1.1m sq ft; Edinburgh 65 requirements and 1.5m sq ft; Glasgow 51 requirements and 1.4m sq ft; Leeds 74 requirements and 2m sq ft; Manchester 90 requirements and 2.5m sq ft.
A shortage of Grade A floorspace in city centres,  prompted occupiers to look out of town as total fringe/out of town take-up reaching 2.8 million sq ft, eclipsing the record level set during 2014. Occupiers were also attracted out of town offices due to availability of larger floorplate stock and cheaper rents, particularly in the Manchester and Glasgow markets. Glasgow was boosted by the University of the West of Scotland’s 225,000 sq ft pre-let of the Eco Campus.

Overall, 44% of the 3.6m sq ft of regional office space currently under construction across the UK regions has been pre-let. Examples include PwC’s part pre-let of One Chamberlain Square in Birmingham
There are 8 million sq ft of known lease expiries over the next five years, there also remains underlying demand for new space, with the likely strongest performers for 2017 predicted to be Leeds, Cardiff and Bristol. There is a shortage of Grade A space, particularly in Bristol and Manchester. Top regional rents remain low relative to Central London.

The Metropolis view is that demand is holding up well in regional cities with 130 new requirements added to the database for the seven largest cities outside London in Q1 2017.

Scotland enjoys growth

CBRE’s H1 2015 report on Scottish office market trends concludes that take-up is above average in Edinburgh, Glasgow and Aberdeen.

In Glasgow, CBRE point to active requirements in excess of 800,000 sq ft, with local agents calculating that demand remains at an all-time high, despite a slightly subdued first half of 2015, with just under 225,000 sq ft of office deals, about 75% of the long term half year average.

The latest large transaction was the 27,522 sq ft let to Teleperformance at Cuprum, along with 10,000 sq ft let to Arup at 1 West Regent Street.

Interest in new schemes at 1 West Regent Street (where Metropolis has reported on the activities of Real Radio) and 110 Queen Street (where there is activity by Deloitte, amongst other) is growing, while St. Vincent Plaza, following its completion, is expected to follow suit with a number of interested potential occupiers. Metropolis is monitoring demand from companies such as Kier, AXA and Jacobs.

In Edinburgh, nearly 404,000 sq ft was transacted in the first half of 2015, which CBRE point out is just above the recent five year H1 average. Capita took the entire building (26,900 sq ft) at 145 Morrison Street and the Law Society of Scotland signed for 19,100 sq ft at Atria One.

Demand remains strong in Edinburgh, with requirements from companies such as KPMG, Amazon, Edinburgh University and Brodies. Metropolis is speaking to over 50 Edinburgh companies about current move plans.

Moorfield is speculatively developing Quartermile 4 and has secured a pre-let to FanDuel. FanDuel concluded the deal six weeks after agreeing terms.

The next large office scheme completion in Edinburgh is The Haymarket due for late 2017.

In Aberdeen, three large pre-let deals were struck during the first half of 2015: Anderson Anderson & Brown and LR Senergy committed to 45,000 sq ft and 100,000 sq ft respectively at Prime Four Business Park while KCA Deutag acquired 70,000 sq ft at City South. Take up in the first half of 2015 was 290,000 sq ft, which was a fall from the 800,000 in the second half of 2014.

Agents report that he majority of letting activity and requirements are in the sub 10,000 sq ft size bracket. Metropolis is tracking demand from companies such as Raggnar Power and Burnett & Reid.

Office Rents Return to Pre-Recession Levels

Recent research by Jones Lang LaSalle indicates that as a result of the new office relocation demand and lack of new grade A office space, office rents in most major UK cities are close to their pre-recession levels.

Office rents in Cardiff, Edinburgh, Glasgow, Manchester Central and the Thames Valley from June 2014 have all passed those of late 2007, considered to be the previous peak of the market, prior to the UK recession. Office rents in Bristol and Leeds have previously matched those of the fourth quarter of 2007. Birmingham is the only city where office rents are still lagging behind the 2007 peak.

In central London, the City and the West End office rents for Q2 2014 were just below their 2007 peak. Rents for the City are £6 psf below and rents for West End are £10 psf. below their previous high point.

The two London markets were hit the worst by the financial crash, with rents in the West End falling 34.7% to £75, and rents in the City dropping 31.8% drop from late 2007.

Monthly letting analyses by Cityoffices.net and Metropolis suggest that in some cases individual deals are already surpassing previous peaks with KPMG rumoured to be paying £125 psf for a move to 18 Grosvenor Street, W1 and Golden Tree Asset Management paying £115 psf for a move to 33 Davies Street, W1.  In addition, rents at 20 Fenchurch Street (Walkie Talkie Building) in the City are rumoured to be topping £70 psf.

Good year for Glasgow

A recent office market report on Glasgow by Knight Frank highlighted an excellent year for office lettings in the city. Office take-up for the year reached 700,000 sq ft, which was 30% above the ten-year average (see below).

 

Glasgow Office Take Up

 

 

 

 

 

 

The largest deal was Scottish Power’s 220,000 sq ft pre-let St Vincent Street HQ, but there were also significant lettings to Brodies Solicitors taking 25,000 sq ft, Atos (37,000 sq ft), Ashurst Solictors (25,000 sq ft), JP Morgan (21,000 sq ft), SAS Software (20,000 sq ft), KPMG (15,000 sq ft), Speirs & Jeffrey (15,000 sq ft) and Skyscanner (11,000 sq ft).

The Metropolis database reveals just over 30 outstanding office requirements in Glasgow, including Teleperformance and Ministry of Justice looking for 30,000 sq ft each and Aquira looking for 20,000 sq ft each. The thirty firms are currently searching for a total of over 300,000 sq ft of office space in the city, although this includes a lot of sub-5,000 sq ft searches. There are another 35 firms due to make decisions ahead of lease expiries in 2014 and 2015.

Total availability of office space in Glasgow, both second-hand and newly constructed or refurbished, has fallen 400,000 sq ft, but only two new buildings fully available for letting.

Three Glasgow office schemes are under construction: Abstract Securities’ 170,000 sq ft St Vincent Plaza; Bam Properties’ 163,000 sq ft 110 Queen Street and M&G Real Estate’s 140,000 sq ft 1 West Regent Street. Agents expect over 450,000 sq ft of new office space to be completed in 2015 and a number of existing Glasgow occupiers are expected to negotiate pre-lets.

The outlook is that a number of high profile office letting deals are likely to be signed over the next 12-18 months as the new office space comes online. There are also additional sites in the pipeline awaiting pre-let interest. Glasgow is also likely to feel some gain to its profile from the 2014 Commonwealth Games which could help inward investment.