Leading real estate advisor CBRE has released its latest figures on the office markets in Edinburgh and Glasgow during the second quarter of 2021.
Stewart Taylor, head of CBRE’s Scottish Advisory and Transactions business, commented: “As restrictions have begun to lift across the country, we’ve experienced a much busier and more positive second quarter with some significant deals transacted. Occupiers are increasingly comfortable with the shape of their businesses going forward and while there will undoubtedly be directional changes, many are now able to set out their occupational strategies. With quality of space and ESG now at the top of many occupiers’ agendas, we expect to see further activity across the rest of the year.”
Take-up for the Glasgow office market totalled 118,628 sq ft in the second quarter of the year, which is an increase of almost 60% from the first quarter of 2021 and 94% from the same period in 2020. There was also 119,973 sq ft of lease regears in Q2, with many office occupiers happy to remain in Glasgow and committing to space within the city.
The biggest deal of the quarter was at 200 Renfield Street, with Instant Offices c/o DWP taking 35,787 sq ft across two floors. This was a building which CBRE subsequently purchased on behalf of a client, MRP.
There was also more pre-let activity at 177 Bothwell Street with BNP Paribas letting 20,600 sq ft in a deal in which CBRE advised on. The NatWest group took over 18,500 sq ft of office space at 110 Queen Street in another sizeable deal.
Current office supply sits at 1,859,455 sq ft, up some 23% from the year-on-year figure. However, this figure reflects a mixture of newly developed office space recently coming onto the market in addition to second-hand vacated space. Grade A space within the city remains at a premium, with just over 6,000 sq ft currently on the market, representing a Grade A vacancy rate of 0.03%. This has led to Glasgow’s prime office rents growing to £34.50 per sq ft in the last quarter.
Andy Cunningham, senior director at CBRE in Glasgow, said: “Glasgow’s office market continues to bounce back strongly as Covid-19 restrictions across the country are eased. The 118,628 sq ft that transacted in the last quarter represents the largest amount of office take-up witnessed in the city since the start of the pandemic and demonstrates how confidence is returning.
“We are also aware of over 1.3m sq ft of active requirements in the market which further emphasises Glasgow’s ability to make a strong recovery as people eventually return to the office.
“The shortage of Grade A space has led to an increase in prime rents which is very appealing to investors and will hopefully create the space for some much-needed capital markets transactions. This, alongside the modern new office space in the pipeline, which is attracting further occupational take up, is putting Glasgow in great stead to bounce back strongly after the pandemic.
“Looking ahead, landlords will need to adapt to the new, more flexible ways of working coming over the horizon, with hopefully a full return to work in Scotland sometime in August/September. There needs to be greater collaboration between landlords and tenants to help entice staff back to the office, with better services and amenities on offer. Buildings that do not embrace sustainability will quickly fall behind and this could help bring about further residential and hotel development in the city centre as functionally obsolete offices become vacant.”
Office take-up in Edinburgh totalled 158,367 sq ft in the second quarter of 2021. This is a 77% increase from the previous quarter and a 489% increase against the year-on-year figure, demonstrating the gradual return of occupier confidence within the market.
Whilst take-up is still down on the five-year average, Q2 is 49% up from the pre-pandemic levels of Q4 2019 and is expected to improve even further with a large number of deals remaining under offer.
The most notable deals include the 61,237 sq ft assignation of 20 West Register Street from Baillie Gifford to FNZ as well as a letting to The Nursing and Midwifery Council which has taken 11,353 sq ft of space at 10 George Street. The Scottish Salmon Company also purchased 28 Drumsheugh Gardens for its new Edinburgh base, a deal in which CBRE was involved.
Q2 also saw various large vacant office sales including Finance House, extending to 90,000 sq ft, which CBRE sold on behalf of Lloyds Banking Group. Others of note included the exchanging of contracts at The Younger Building and Drummond House in South Gyle which were both bought by Shelborn Asset Management. CBRE has been instructed to work with Shelborn to deliver both refurbished and new build space within what will be a significant development at the Gyle.
Office supply in Edinburgh currently sits at 1.729m sq ft, representing a fall from both Q1 2021 and from 2020’s final figure. New Grade A space remains at a premium within the city centre with just 166,000 sq ft currently available to occupy, resulting in a city centre new Grade A vacancy rate of 0.92%. The office availability rate has also decreased across the whole of Edinburgh and now sits at 9.58%.
Further encouragement should be taken from the number of active requirements currently out in the market, with over 852,000 sq ft of business space needed.
Beverley Mortimer, an associate director from CBRE in Edinburgh, said: “There was a marked increase in the number of deals which concluded in the second quarter of 2021, highlighting that occupiers are getting ready to return to the office. We are also continuing to see occupiers reassessing their space requirements as a blended style of working will play a role for some moving forward.
“We have seen various occupiers consider serviced options as an interim solution until they are clear on how they will work moving forward. Despite a fall in occupancy levels for serviced offices over the last twelve months, this recent interest has meant a return to pre-pandemic levels for the main operators in the city.
“As it stands, office workers in Scotland will be returning to the workplace in August. It will then be interesting to see how companies have adapted their working practices in response to 18 months, for many, of working from home. Consequently, there will be an increased focus on the provision of office space that encourages employees to return to their desks. In the past quarter we have also seen Edinburgh city centre get busier week on week, and with the opening of the new St James Quarter, this is likely to entice even more people back.”