Leading real estate advisor CBRE has released its latest figures on Scotland’s office market, revealing an encouraging performance despite ongoing political uncertainty.
Stewart Taylor, senior director at CBRE in Edinburgh, commented: “Despite a backdrop of uncertainty, the Scottish market proved resilient across the three principal cities in 2019. The Glasgow market has continued to tighten with significant pre-lets underlining the increasing importance of real estate in attracting and retaining employees. The Aberdeen market is now on an upward cycle and while take-up was down in Edinburgh from a ten-year high, we anticipate that the lack of a development pipeline of any significance will lead to further pre-lets as occupiers secure the remaining Grade A space. Take-up of Grade A accommodation in Edinburgh remained high at 40% of total take-up, further underlining the drive to quality. Indeed, the economic outlook for the capital remains positive, with the city’s population forecast to grow at almost double the UK average over the next decade.”
The final quarter of 2019 saw Glasgow office take-up of 248,207 sq ft, bringing the 2019 total to 856,410 sq ft. The take-up for the quarter was 12.17% higher than the five year average for Q4, with the annual total up 16.1% on the five year average.
Among the notable deals was an additional 48,704 sq ft taken by Virgin Money at the under-construction 177 Bothwell Street, where landlord HFD Group’s serviced office business Opus has also taken more than 65,000 sq ft.
Glasgow’s city centre office supply has seen a slight overall increase, to 1,104,411 sq ft. Grade A supply levels remain critical at just 6,000 sq ft, with the vacancy rate decreasing from 4.1% in Q4 2018 to just 0.4% for the same period in 2019.
Andy Cunningham, senior director at CBRE in Glasgow commented: “The Q4 office market performance represents a reassuring close to 2019 for Glasgow, with take-up exceeding the five-year average for the final quarter by a healthy 12%. CBRE acted on two pre-lets at landmark Grade A development 177 Bothwell Street, together comprising over 100,000 sq ft. The proportion of pre-let space within Q4 take-up is demonstrative of the high demand for best in class office accommodation among Glasgow occupiers, with Grade A supply levels currently available in the city centre shrinking to an all-time low of just 6,000 sq ft.
“Overall the annual take-up for Glasgow’s office market in 2019 saw a 16.1% increase on the five year average. Demand for office space in Glasgow remains high, and we are very optimistic for a strong 2020.”
96,742 sq ft of transactions in Q4 brought the total Edinburgh office take-up for 2019 to 603,076 sq ft – down 29.9% on the five year average. However, there were regears of 355,133 sq ft throughout the year – not far off the 394,538 sq ft recorded in 2018.
The number of deals surpassing 30,000 sq ft remained consistent throughout 2018 and 2019, with both recording a total of seven. Transactions of 5,000 sq ft and below remained the highest in terms of volume.
Beverley Mortimer, associate director at CBRE in Edinburgh said: “Despite the fall in take-up, it’s important to remember that the final take-up figures for 2017 and 2018 were exceptional, with significant pre-lets at New Waverley, Capital Square and Quartermile 3 leading to decade high levels of take-up.
“While overall take-up has decreased year-on-year, Grade A space accounted for 40% of the 2019 take-up, mirroring the 2018 figure. We can also see that levels of regears have remained relatively consistent year-on-year, which we attribute to a lack of new Grade A space in the city. The only buildings to complete in 2019 were 10 George Street, The Mint, New Waverley and 80 George Street, with the latter being fully let by serviced-office provider We Work and the others fully pre-let. Capital Square and New Fountainbridge are due to complete in 2020.
“With Grade A availability remaining critically low at 2.7%, upward pressure on rents will continue. If you are an occupier searching for 20,000sq ft of new space over no more than two floors, there are only two options in the city. With a reduced development pipeline going forward, we expect further pre-lets as tenants secure the remaining available space, in addition to a growth in regears resulting from limited options.”
Aberdeen experienced a healthy final quarter in 2019, bringing the year-end total to 505,710 sq ft – the highest level of office take-up since 2014. This represents a 42.4% increase from 2018, and a 34.4% increase against the five year average of 376,324 sq ft.
There were a number of large transactions throughout the year, with the 51,000 sq ft taken by engineering firm Oceaneering at Aberdeen International Business Park in September representing the largest office transaction in the Aberdeen market since 2015. This was then then surpassed in Q4 with the 76,620 sq ft taken by Taqa at Prime Four in Kingswells.
A further 32,000 sq ft of surplus space at Prime Four was secured by Transocean and Addleshaw Goddard, while Westhill saw Total and Borr Drilling secure new premises of 12,500 sq ft and 15,000 sq ft respectively. At the Hill of Rubislaw, Citibase opened a second 17,000 sq ft serviced office and Siccar Point took on an additional 4,500 sq ft suite in H1.
In the city centre, deals at Marischal Square saw a total of 30,800 sq ft of space taken by EY, KPMG and Chevron, while 17,000 sq ft on Schoolhill was acquired in a collaboration between Opportunity North East and Codebase to open Aberdeen’s first Tech Hub.
Derren McRae, managing director of CBRE in Aberdeen, said: “Mirroring the improved economic sentiment in the North East, 2019 has been a great year for the office market performance in Aberdeen. With the oil price rising to $60 – $75 per barrel over the year, the city has witnessed an encouraging level of take-up, focused mainly on the energy and professional services sectors.
“Interestingly, the larger transactions have been spread throughout the city, demonstrating the impact the new Aberdeen Western Peripheral Route ring road is having on occupiers and their decision making when it comes to location.
“The volume of city centre deals are a sign of its continued resurgence, although the acquisition of 14,000 sq ft at 1 Albyn Place by Add Energy shows that occupier demand for the best quality West End buildings remains strong. The launch of Opportunity North East and Codebase’s Tech Hub, providing 17,000 sq ft of incubator space for tech start-ups, is a positive sign of the diversification taking place in the North East economy.
“Looking forward we anticipate further asset acquisitions in the North Sea in 2020 which we expect to lead to new requirements resulting in greater demand for Grade A stock across the city.”