Leading real estate advisor CBRE has released its latest figures on the office markets in Edinburgh and Glasgow during the final quarter of 2020.
Stewart Taylor, head of CBRE’s Scottish office agency business, commented: “Whilst take-up of office space has reduced this year in Glasgow and Edinburgh, it is in line with the pattern we’re seeing across the UK. In light of the temporary withdrawal of most occupiers from the market for nine months, unless triggered by a lease event, it’s a much better outcome than most commentators were expecting in the summer.
“After the initial shock of Covid and some sceptics citing the end of the office as we know it, evidence is actually pointing towards a strong bounce back with the vast majority of occupiers concluding that a return to some form of blended working will be the new normal and they want that to be in high quality office space.”
Edinburgh
Over the final quarter of 2020, office take-up in Edinburgh totalled 103,444 sq ft, which is only a 2.46% decrease from the same period in 2019 despite the difficult economic climate. This brings the total take-up for 2020 to 576,927 sq ft, which is just 4.33% down on 2019 and 27% down on the five-year average.
Encouragingly, throughout the whole year, the city witnessed 371,792 sq ft of Grade A space transacted, this is up from 2019’s total of 245,451 sq ft and continues to illustrate Edinburgh’s popularity amongst international office occupiers looking for modern space in a vibrant city.
There were 91 lettings this past year in Edinburgh compared with 149 in 2019. The largest deal of which was the 280,000 sq ft pre-letting at Haymarket, with Baillie Gifford committing its future to the development. Other notable deals included Arup taking two floors at 10 George Street, equating to 20,000 sq ft, Peoples Energy letting 17,500 sq ft at Shawfair and The Financial Conduct Authority taking 16,000 sq ft at Quayside House.
Unsurprisingly, supply has crept up in Edinburgh, with 1.721m sq ft of office space now available within the city. This represents a 2% rise from the previous quarter’s supply figure and a 26% increase on the year-on-year supply figure. Grade A city centre supply remains critically low at 560,214 sq ft and new Grade A city centre stock is still at a premium with only 251,303 sq ft available.
Beverley Mortimer, associate director from CBRE in Edinburgh commented: “As the dust settles, it’s clear that Edinburgh weathered the storm significantly better than was expected, buoyed without question by the pre-letting of 280,000 sq ft at Haymarket.
“In terms of supply, the increase in new Grade A space to 251,303 sq ft is only a rise of 4.5% against 2019 with a painfully low vacancy rate of 1.52%. The Grade A pipeline also remains limited, however, notably Capital Square is due to complete in May this year. Whilst already 56% pre-let it still offers 54,000 sq ft of new Grade A space in the city centre.
“In summary, it’s a remarkable result considering the market conditions.”
Glasgow
Take-up for the Glasgow office market totalled 108,069 sq ft during the final quarter of 2020. Whilst this is a 65% drop from the same period in 2019 and 55% down on the Q4 five-year average of 244,178 sq ft, it is up almost 25% from Q3 2020.
The total take-up for Glasgow in 2020 was 451,428 sq ft, which is a 53% reduction on 2019 and also 49% down on the five-year average.
There were 86 deals over the year in Glasgow, down from 2019’s total of 169 deals, however seven of these lettings surpassed the 10,000 sq ft mark.
The biggest deal of the year was at 220 High Street, where Scottish Ministers took over 90,000 sq ft of office space at the start of 2020. There were also notable big deals at Berkeley Square with Glasgow University letting over 30,000 sq ft of space, and at Skypark where global aerospace company Spire took 29,500 sq ft of office space in Q4’s largest deal.
Encouragingly, as 2020 drew to a close, there were over 56 live requirements for Glasgow, equating to a healthy 861,100 sq ft.
There is currently 22.4million sq ft of office space in the Glasgow office market with 1,827,346 sq ft available, representing a 14% rise from the year-on-year figure. Available Grade A office stock remains critically low, with just 6,440 sq ft available within the city.
Whilst there is 1.425m sq ft of Grade A under construction, 81% of 2021 development completions are either pre-let or pre-sold to the likes of Barclays, HMRC, Opus, Virgin Money and JP Morgan with only 19% (266,509 sq ft of) available for let.
Andy Cunningham, senior director at CBRE in Glasgow, commented: “2020 can best be characterised as the year when everything changed. However all markets across the UK have been impacted by Covid so these numbers should not alarm. It stands to reason that Scotland’s busiest and biggest city was always going to suffer the effect of a global pandemic – and a literal close of business – much more severely than the rest of country.
“Office take-up figures for 2020 show the real impact Covid has had on Glasgow, however, as Scotland’s largest city, Glasgow is also best placed to bounce back with some fantastic, best in class office stock coming to the market in the next twelve months. It is because of this, and with Glasgow at present facing a critical shortage of available Grade A office space, that we still expect prime rents to rise in the city in 2021 as potential new occupiers battle for what limited premium space there is available.
“Whilst we expect take-up levels to remain below trend in 2021, small deals and those driven by lease events are still likely to progress, with larger deals most likely to be impacted. As delayed completions and deferred start dates are predicted for development, we are expecting to see secondhand availability increase. Flexibility in employee working locations will also be a big theme for 2021 as well as the long‑term trend of office densification and space efficiency.”
Investment
Steven Newlands, executive director in CBRE’s Investment team and head of the CBRE Edinburgh office commented on the performance of the office investment market: “Although office investment volumes were down in Scotland from £807m in 2019 to £361m in 2020, a rebound is expected in 2021. A heavy reliance on overseas investors and an inability to travel has been a barrier to transactions but an easing of travel restrictions will remove this barrier and facilitate activity.
“Despite the enormous challenges faced by the offices sector, headline rentals held up well in 2020, and while we anticipate a subdued recovery in the first half of the year, the low levels of supply in Edinburgh and Glasgow are likely to underpin a return to rental growth, pushing up values and increasing the attractiveness of some assets. Certain sectors will see above-average levels of activity with the creative sector benefiting from increasing reliance on technology and life sciences sectors likely to be particularly active, with the pandemic leading to significant increases in funding and investment within this sector.
“As the vaccine is rolled out and people return to workplaces, albeit potentially in a different working pattern, we will see a flight to quality as employers strive to make workplaces a destination.”
