Leading real estate advisor CBRE has released its latest figures on the office markets in Edinburgh, Glasgow and Aberdeen during the third quarter of the year.
Stewart Taylor, head of CBRE’s Scottish office agency business, commented: “The offices sector, along with every other sector, continues to be significantly impacted by the lockdowns triggered by the COVID-19 pandemic. However, activity has increased with some substantial transactions taking place. Comments forecasting the death of the office are misplaced: a greater prevalence of flexible working does not translate into occupiers taking less office space, but different space, as the need to exchange ideas, collaborate and innovate outweighs short term concerns. There is an industry-wise acknowledgment, supported by research, that despite ongoing restrictions the physical office is here to stay, as businesses plan to adopt hybrid work practices.”
Over the third quarter of the year, office take-up in Edinburgh was the highest it has been since Q2 2018, with 315,977 sq ft of office space transacted, a 135% increase from the same period in 2019 and 73% up on the five-year average. This brings the total take-up for 2020 so far to 473,483 sq ft, which is just 4.7% down on the same period in 2019, bringing levels more in line on a year-on-year basis.
The quarter’s strong performance is mainly down to investment management firm Baillie Gifford’s pre-letting of Buildings 4 and 5 at The Haymarket development, a deal which represents Edinburgh’s largest ever pre-let, totalling an estimated 280,000 sq ft. Without this deal, Edinburgh’s take-up totalled 35,977 sq ft, an increase of 33% from the previous quarter.
There were some significant deals completed in the sub-10,000 sq ft market including Mobile Testing Solutions’ 4,104 sq ft letting at 40 Sciennes and Peoples Post Code Lottery taking 3,761 sq ft of space at 30 Charlotte Square. This market has been particularly active in 2020 generally, with 61 of Edinburgh’s 66 office transactions this year falling into this category.
In terms of supply, 1,690,824 sq ft of office space is available in Edinburgh. This represents a 5% rise from the previous quarter’s supply figure and a 32% increase on the year-on-year supply figure. City centre supply remains critically low at 822,620 sq ft and new Grade A city centre stock is still at a premium with only 271,221 sq ft available. Where Edinburgh differs from other centres is the absence of second hand space being returned to the market.
Angus Lutton from CBRE in Edinburgh commented: “Whilst we expect there to be more challenging conditions in the last part of the year, encouragingly, new requirements are being brought to the market and viewings are taking place again as companies resume searches which had previously been placed on hold. Firms have begun to adapt to the changes that COVID-19 has brought but it is still too early to fully understand the lasting impacts. In some instances requirements have been reduced whilst other companies demand more space for the eventual return of their staff at a lower density. A common theme in all markets is the flight to quality space, as ironically the workplace becomes more important in the post pandemic world.”
Take-up for the Glasgow office market totalled 86,615 sq ft during the third quarter of 2020, a 76% drop from the same period in 2019 and 66% down on the Q3 five-year average. This brings the total take-up for the year so far to 343,359 sq ft, which is 48% down on the same period in 2019.
Despite a modest level of take-up, activity in the third quarter was up by 42% from the previous quarter, showing the green shoots of recovery are evident after several months of challenging government restrictions due to COVID-19.
Key deals included Westcot Credit Services taking 28,388 sq ft of space across three floors at 310 St Vincent Street and insurance company Chubb leasing 18,252 sq ft of recently refurbished office space within the Sentinel building, represented by CBRE. Other sizeable deals included One Search Direct acquiring 7,487 sq ft at Skypark and Jones Whyte taking 5,861 sq ft at Fyfe Chambers on West George Street.
Total supply within the city now sits at 1,768,094 sq ft, representing an 11% rise from the year-on-year figure. Available Grade A office stock remains critically low in Glasgow, with just 6,443 sq ft of new office space available within the city. Whilst the pandemic has delayed completion of new and refurbished office developments within Glasgow, 55 Douglas Street will complete before the end of the year. The 80,000 sq ft building will significantly help to address the critical shortage of best in class space in the city centre.
Alistair Urquhart, director at CBRE in Glasgow commented: “Despite a continuing challenging climate, we’ve been encouraged by improving levels of demand for space. There were over 30 new requirements for office space in Glasgow in the third quarter as office occupiers sought to move to business space that is suitable for the needs of both their workload and, perhaps more importantly, their staff.
“There have been 58 office transactions so far this year in Glasgow, with six surpassing the 10,000 sq ft marker. Encouragingly, this figure of six deals mirrors exactly how the market performed for the same period in 2019, again perhaps exemplifying just how much of a resilient market Glasgow is, even in the face of a global pandemic.”
In the third quarter of 2020, office take-up in Aberdeen totalled 81,723 sq ft, a drop of 33% from the same period in 2019 but up almost 150% from the previous quarter. This brings the total take-up for the year to 268,871 sq ft, which is encouragingly still marginally up on the same period in 2019.
The area of Dyce secured four of the largest transactions in the quarter with TAC Healthcare purchasing Wood’s former 19,233 sq ft office on Wellheads Crescent, energy services company Expro acquiring the 16,212 sq ft Kirkhill House and drilling waste specialist TWMA and subsea contractor Ocean Installer taking 8,030 and 7,233 sq ft respectively at Aberdeen International Business Park.
The largest in town letting was artificial intelligence company Arria taking 9,863 sq ft at Carden Church in the west end of the city.
Supply in the city currently sits at 2,678,000 sq ft, a 4.65% rise from the same period in 2019. Out of this supply figure, only 545,200 sq of it constitutes as modern office space; just over 20% of the office space currently available in the Granite City.
Commenting, Derren McRae, managing director of CBRE’s Aberdeen office, said: “As we are seeing across various markets, the climate continues to be challenging, however we have seen a significant increase in activity in the third quarter of the year with some key transactions taking place.
“Commercial terms for the majority of the Q3 transactions were agreed prior to COVID-19 so it is a positive reflection of the market that these deals did indeed follow through to completion, albeit in some cases occupiers looked to either slightly reduce their office footprint or negotiate additional flexibility on lease term.
“Dyce has witnessed a transformation in recent years and the four office acquisitions demonstrate occupiers’ ever improving perception of the area. It was also pleasing to see Carden Church being acquired by Arria which will relocate from the north of the city to one of the highest profile office buildings in the West End.”