Leading real estate advisor CBRE has revealed findings from an extensive research project on Glasgow’s office market stock, the first time a detailed analysis of the market has been done which includes the total amount of office space across the whole city.
Andy Cunningham, senior director at CBRE, said: “Confusing boundaries for the office market in Glasgow has resulted in different figures being quoted for the total amount of stock over the years and more worryingly, a potential barrier to UK and international investors. We decided to carry out some research and produce a comprehensive review of the market, counting and grading every building to provide an updated stock figure that covered the whole city, something which has never been done before.”
The report shows that there is currently a total of 22.4 million sq ft of office space in the city, making it Scotland’s largest office market and pushing it onto a platform with the likes of Manchester and Birmingham. However, of that space, only 6,400 sq ft, or 0.02%, of Grade A space (out of a total 2,067,464 sq ft) is currently vacant.
Andy continued: “There is a severe shortage of space at the top end of the market – it would take only one fairly modest letting before there is simply nothing available for occupiers seeking ready-to-occupy truly Grade A accommodation. This is a serious issue for companies coming to the end of their existing leases or considering locating in the city, meaning Glasgow could fail to retain or attract some key organisations and investment.
“The drop in the amount of office stock can in part be explained by the general trend towards residential use of buildings within the city centre, which has overtaken the pre-Covid trend of converting office buildings for hotel use. Increasingly landlords with Grade B buildings, which need a big investment to bring them into line with their competitors, are reviewing their options in case they can find a higher value use for their asset. In Glasgow we recently acted for the vendor of Portcullis House on India Street in a deal which will see the purchaser convert the building into Glasgow’s largest Build to Rent scheme with 750 units. City centre living is being heavily promoted by Glasgow City Council via its City Centre Living strategy, which proposes to double the population to over 40,000 over the next 15 years. This sits well with Glasgow’s larger corporate occupiers who tend to hire well-paid staff on flexible contracts in the fintech sector for example.”
While there is more Grade B availability at 1,581,282 sq ft, or 7.05%, (of a total of 15,028,313 sq ft), the bottom end of the market is also under pressure with just 0.28% of the total Grade C space (5,328,086 sq ft) currently empty, equivalent to 631,129 sq ft.
Andy added: “Older buildings, which are functionally obsolete and not financially viable for landlords, being taken out of the market is definitely no bad thing. It may create pressure on supply and lead to an increase in rents and this, alongside the strong demand for Grade A space, may encourage developers to build speculatively.”
In Glasgow there is currently 1.4 million sq ft of office space under construction however 81% of that is already pre-let or pre-sold to occupiers such as Barclays, HMRC, Virgin Money and JP Morgan.
“There are other buildings in the development pipeline, such as The Grid, Carrick Square and Broadway Central, that have planning consent and are ready to go but many require significant pre-lets or better market conditions to give the developer the confidence to commence construction.
“The Covid-19 pandemic has of course affected the market this year however activity in the third quarter was up by 42% from the previous quarter, showing some green shoots of recovery are evident. 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.
“Post-pandemic, we predict that sustainability will be firmly back on the agenda and will be a top priority for occupiers’ reviewing their real estate requirements. Older buildings simply can’t compete in terms of technology and environmental features and will therefore face some costly compliance issues. Our clients HFD Group and BAM Properties have been at the forefront of this change and are currently developing market leading workspaces at 177 Bothwell Street and 2 Atlantic Square, both of which are due to complete during Q2 – Q3 2021.”