Leading real estate advisor CBRE has released its latest figures on the office markets in Edinburgh, Glasgow and Aberdeen during the final quarter of 2021.
Stewart Taylor, Head of CBRE’s Scottish Advisory and Transactions business, commented: “If we had known twelve months ago that 2021 would be dominated by more restrictions and stop/start government guidance, we would have taken these results and headed for the hills. No one now thinks the office is dead. What we are seeing is an acceleration of arguably overdue change, with quality and sustainability at the core of decision making. These are a strong set of statistics and as we enter the new normal, we will continue to see a flight to quality and record rents being set in buildings owned by forward thinking investors.”
Office take-up in Edinburgh totalled 294,441 sq ft in the final quarter of 2021. This is up 101.8% from the previous quarter and 77.7% against the Q4 five-year average. It brought Edinburgh’s total take-up for the year to 688,238 sq ft. Whilst this is below the five and ten-year average, it is a return to the pre-pandemic level of 2019.
A flight to the best quality space remained the trend for the rest of the 2021 with Grade A take-up in the final quarter totaling 187,996 sq ft. Notable deals included the letting of the newly completed 2 Freer Street in Fountainbridge in which Fanduel acquired the whole building, comprising 59,000 sq ft. There has also been further activity at The Haymarket development where Capricorn, Shepherd & Wedderburn and Deloitte LLP have all taken space totaling 78,610 sq ft. The development has pre-let quickly and emphasises the appetite by occupiers for prime new Grade A space, which remains in very short supply across the city. The city centre new Grade A vacancy rate totals just 0.69% with an extremely limited supply on the horizon. There were also notable sub-lettings with User Testing taking 13,682 sq ft at Exchange Crescent and Unity Technologies acquiring 8,950 sq ft at Capital House with CBRE acting on its behalf.
The serviced market in Edinburgh has had a strong year and is only limited by the lack of available flexible space in the city. Both national and independent service providers have continued to have strong occupancy levels with various centres at 100% capacity for the foreseeable future and long waiting lists of interested parties. This can be linked to the impact of the pandemic with companies looking for flexibility as they decide how they will work moving forward.
Prime rents in Edinburgh have grown throughout the year which can be attributed to the tight supply of new Grade A developments and the flight to quality space in response to drivers such as ESG and staff wellbeing. Prime rents now sit at £38.50 per sq ft but this is expected to grow in the coming months with rents of £40 per sq ft on the best space achieved at the new Haymarket development.
Supply once again crept up in the last quarter, with 1.92m sq ft of office space now available within the city. This slight increase can be attributed to developments completing and a rise in grey space across Edinburgh as several occupiers adopt new and different real estate strategies to combat the ongoing pandemic.
Angus Lutton, Surveyor from CBRE in Edinburgh, said: “The importance of ESG credentials is now paramount to occupiers and is driving their real estate decision-making. The current trend is being led by large multinational companies, but we expect this to trickle down to all occupiers moving forward as they set their net zero targets. This will put further pressure on landlords to look at building performance to make sure it is in line with ESG requirements. We continue to see occupiers put staff wellbeing at the top of their list of necessities as they seek to offer the best possible working environment for their staff. Again, this is a trend which has been accelerated by the pandemic.
“Moving forward for the coming year we hope to see a gradual return to the office. This will allow companies to understand how they will work in a post pandemic world and solidify their space requirements.”
Take-up for the Glasgow office market totalled 115,825 sq ft in the final quarter of the year, which is down from the previous quarter but up 33.5% against the same period in 2020, a recovery much stronger than many of the other UK cities.
A total of 42 lettings took place across the quarter, with the biggest being another pre-let at 177 Bothwell Street; Transport Scotland took almost 50,000 sq ft at the new development in a deal that CBRE was involved in. Other notable deals included The Wise Group taking 6,667 sq ft at Templeton on the Green and Experian’s 5,249 sq ft letting at McLellan Works.
603,000 sq ft of office space transacted across the year and whilst this is lower than the city’s long-term annual average, it indicates growing confidence in the city.
Glasgow benefits greatly from its accessibility, its value and its workforce and these traits are what attract corporate occupiers to the city. 128 businesses took new space within the city in 2021, up 42 from the previous year’s figure. The noticeable uptake in the number and volume of deals for the year has led to larger deals concluding, with seven deals surpassing 20,000 sq ft in 2021. The largest of which was The Student Loans Company’s 75,000 sq ft pre-let at Buchanan Wharf.
Although office supply has crept up slightly, the demand for best-in-class Grade A space within the city remains evident – numerous pre-lettings at 177 Bothwell Street were confirmation of this trend. Grade A supply within the city therefore remains at a premium, with just 0.64% of Glasgow’s entire office stock (2.252m sq ft) currently being considered as vacant Grade A space. With several larger requirements out already in the market for 2022, it expected that the little Grade A space that is available will transact quickly.
The lack of Grade A supply has put pressure on rents. Prime office rents are at a record level of £35.25 per sq ft, with secondary rents also growing at a much faster pace than witnessed before as many developers are forced to refurbish old space due to the lack of new developments coming out of the ground. Positive rental growth will be an attractive proposition to investors and will further indicate the recovery path Glasgow finds itself on post-Covid.
Martin Speirs, Associate Director from CBRE in Glasgow, said: “As 2021 drew to a close, Glasgow’s office market recovered strongly from the effects of the pandemic in 2020 and prospects for this coming year look even better. In fact, there is a real buzz around Glasgow at the moment as it illustrates just why it is such an attractive office location. As the eyes of the world watched on in 2021, Glasgow hosted COP26 effortlessly, proving to all the clear capabilities and infrastructure the city has in place to make sure that business, commerce and trade will always flourish within its boundaries.
“2022 is shaping up to be an exciting year with strong demand expected to continue, especially for the best-in-class buildings and those that can meet occupiers growing focus on ESG credentials.”
Office take-up in Aberdeen for Q4 was the strongest for the year, with 91,000 sq ft transacting across 14 deals between October and December. This represents a 77.3% increase from the previous quarter. However, with Covid restrictions ongoing, Aberdeen has admittedly struggled to recover at a quicker pace than Scotland’s other big cities as many businesses continue to hold off making decisions on property strategy until measures are eased and the true impact of hybrid working is assessed. Coincidently, 118,000 sq ft of re-gears concluded within the year illustrating that many businesses are instead choosing to extend leases on the space they currently occupy in these uncertain times.
The total office space take-up for 2021 was 197,914 sq ft, which is 47% below the five-year average and Aberdeen’s lowest level of occupational take-up since CBRE records began. However, CBRE alone has in excess of 150,000 sq ft of transactions currently under offer that have slipped into 2022 so a strong start to this year’s take-up figure is expected.
The largest deal of both the quarter and 2021 overall was at the former Chevron House at the Hill of Rubislaw, where Ithaca Energy made the positive commitment to purchase its 96,357 sq ft office headquarters having originally intended to downsize in the building. Other notable deals for 2021 include MRS Training & Rescue taking 18,264 sq ft at Aberdeen Innovation Park, Mental Health Aberdeen taking 11,827 sq ft at Langstane House and HSE/The Met Office concluding on 11,237 sq ft at Aberdeen International Business Park in Q1. CBRE was involved in three out of these four transactions.
Supply has continued to rise as the year draws to a close. There is currently 2.793m sq ft of available office space within Aberdeen, representing a total vacancy rate of 27.93%. Crucially however, Grade A space remains at a premium as new stock continues to prove popular with occupiers. There is currently only 491,527 sq ft of available Grade A space within the Granite City, representing a vacancy rate of 4.92%.
Amy Tyler, Associate Director from CBRE in Aberdeen, said: “Whilst deal volumes and the space transacted are down across the year, there are still many reasons to remain optimistic about the office market in Aberdeen. There are signs that the city will soon enter its recovery phase as at present there is 300,000 sq ft in live requirements for office space in the city.
“COP26 being hosted in Scotland also demonstrated the importance of renewable and clean energy going forward, and there is perhaps no city better placed to embrace this change with Aberdeen already a leading figure in the development of sustainable energy. ETZ Ltd’s (Energy Transition Zone) commitment to a new 4,445 sq ft office at Blenheim Gate is a statement of intent for this next critical phase of the North East’s energy sector.”