Demand for office space strengthens in first half of 2017

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Property consultancy CBRE’s H1 2017 Office Market View report has shown an improvement in demand for office space across Scotland in the first half of the year, with the strongest six months of take-up ever recorded by CBRE in Edinburgh.


Edinburgh has seen numerous pre-lets signed during the first half of 2017 which resulted in a total take-up of 739,860 sq ft, the highest six months of take-up ever recorded by CBRE and more than the full year total in 2016. A series of pre-lets and lettings on schemes under construction have accounted for around 42% of that total take-up. Just as the second quarter closed, it was confirmed that the Government Property Unit (GPU) has signed up for 181,307 sq ft at Artisan Real Estate’s New Waverley scheme.

The market was strong prior to the GPU deal due to a 65,628 sq ft letting at Quartermile 3 to State Street Bank, the largest letting to a bank in Edinburgh city centre since 2003. Elsewhere, Computershare signed for 41,395 sq ft at the 4 North development in St Andrew Square and Nucleus Financial Group took 18,696 sq ft at Greenside, Blenheim Place.

Discounting the pre-let deals reduces take-up to around 432,000 sq ft, which, by historic standards, still represents a strong market.

Total availability at the end the first half of the year was 1.33 million sq ft, a 9% increase since the end of 2016, but 10% down on the same period last year. Second-hand supply has risen slightly over the past six months, however new build space has fallen by over a third with just over 136,000 sq ft available, or scheduled to be ready to occupy, within the next twelve months. The only significant new development to be completed will be 2 Semple Street in Edinburgh’s Exchange District.

On the back of this year’s take-up and the low level of supply, together with limited active refurbishments, there is a strong justification for more development to be brought forward. Nevertheless, the list of likely starts is limited. Capital Square is expected to break ground before the end of this year, however no other schemes look likely.

Prime rents in Edinburgh increased to £32.00 per sq ft during the last six months. At the same time, incentive packages are falling. Demand is very much focused on good quality accommodation where supply is limited, so there is likelihood that rents could edge up higher.

Investment activity has been more subdued in the first half of 2017 than in recent years. So far this year, investment transactions in Edinburgh totalled £91 million. Exchange Place 1, which was acquired by GLL for £47 million, was the largest deal in the first six months of the year. A further notable deal was the purchase by Wirefox of Silvan House, the Scottish headquarters of the Forestry Commission, for £17 million.

Stewart Taylor, senior director in CBRE’s Edinburgh office said: “With record levels of take-up and Grade A space at a decade low, occupiers are looking at an increasingly bare cupboard. The Capital Square and Semple Street developments will provide some short term sustenance but with pre-letting now the norm, sites limited and speculative funding remaining challenging, a change to the current landscape is urgently needed.”


Office space take-up in the first half of 2017 totalled 240,704 sq ft; this was reasonably strong compared to recent levels and an 82% uplift from the last six months of 2016. Take-up was significantly boosted by Total’s acquisition of 138,535 sq ft at the West Campus building at Westhill. Total originally intended to build a new HQ at its current site at Altens, however, as a consequence of changing economic conditions, made the decision to take advantage of favourable market conditions and acquire a surplus Subsea 7 building.

Encouragingly there have been some further energy sector acquisitions including Siccar Point Energy acquiring a 7,730 sq ft suite at H1, The Hill of Rubislaw, following a £7 million upgrade of the building. The majority of lettings have taken place in the city centre, West End and Western Office Corridor. There was more demand for modern open plan office space as opposed to the more traditional cellular West End granite offices.

There are a number of active office requirements, largely in the sub-10,000 sq ft size bracket. Brexit negotiations are unlikely to impact on office market activity, however, any positive upturn in the oil price is likely to improve demand. Despite this, energy sector companies are likely to continue to apply cost cutting measures.

Availability at the end of the first half of 2017 increased to 2.9 million sq ft, the majority of which (78%) is second-hand Grade B stock. No new office development is likely to take place given current market conditions. Refurbishment works will commence in M7’s 46,000 sq ft Meridian in the second half of the year. The Silver Fin Building (133,000 sq ft) and Marischal Square (177,500 sq ft) will also reach practical completion in the next few months.

Prime city centre headline rents remain at £32.00 per sq ft for Grade A space in the city centre however rental rates in periphery locations continue to be impacted. As supply levels rise incentive packages are likely to continue to increase.

Investment activity for office stock in Aberdeen remains limited to just a handful of deals every six months. A total of £56.48m of stock has been sold across four individual deals during the first half of 2017. However, the bulk of this total, some £41.28m, comprises just one deal at Prime Four Business Park at Kingswells. Here, the building let for 15 years to Lloyd’s Register was purchased by LCN Capital Partners, a new entrant to the Aberdeen market.

Derren McRae, managing director of CBRE in Aberdeen, said: “H1 2017 has seen an improvement in take-up levels with encouraging return in activity from energy sector companies. The largest letting has been Total taking advantage of market conditions and acquiring a surplus Subsea 7 office in Westhill for its new HQ. On a further positive note for Aberdeen, we have also seen relatively new entrants to the North Sea, Siccar Point Energy and Decipher Energy, acquire high quality refurbished space. We anticipate this trend of take-up of best in class space to continue into H2.”


The first half of 2016 was one of the strongest six months on record for the Glasgow office market. It was expected therefore that take-up would fall short over the same period in 2017. Overall, during the first six months of the year, take-up reached a total of 235,384 sq ft. Whilst 43% lower than the first half of 2016, it is more in line with the second half of last year, down by just 6%.

Two of the larger deals in 2017 have taken place within second-hand, unrefurbished buildings. This includes the largest deal of the year to date, where the Student Loans Company has taken 40,853 sq ft at the Europa Building on Argyle Street. On new build space, the largest letting saw Mott Macdonald take 34,515 sq ft at St Vincent Plaza, whilst SgurrEnergy also signed for 17,249 sq ft in the same building. Elsewhere, energy regulator Ofgem has acquired 21,155 sq ft of space at Commonwealth House, Albion Street.

At the mid-year point there are two major deals under offer with a combined floor area of circa 160,000 sq ft. In addition there are a number of requirements circulating for high profile companies within the creative, insurance and financial services sectors, as well as one for the Government Property Unit. Add to this mix an expected increase in lease expiries due between 2019 and 2021 and there is every expectation that demand will remain robust.

Total supply at the end of June was 1.63 million sq ft across the city centre. Overall supply is up 10% over the past twelve months, but this is entirely due to an increase in second-hand space. New build space in contrast continues to deplete, down 10% over the last year, as the final floors in the new builds from the last development cycle gradually become acquired. No new builds are on site in the city centre, with little prospect of any new starts in the short term.

Prime rents currently stand at £29.50 per sq ft, and with a lack of new build stock hitting the market, this level is likely to remain unchanged for the time being. However, with a very limited supply of Grade A space, occupiers are now more actively considering good quality refurbishments. It is in this part of the market that the strongest rental growth for the second half of 2017 is expected. As a result, the gap between good secondary and prime offices is narrowing, a trend which is expected to continue for the remainder of 2017.

Investment demand for Glasgow offices has remained stable so far this year. Overall £119.56 million of office stock has been sold, a marked increase on the second half of 2016. The largest single asset sale of the year so far has seen Cuprum sell for £28m to Credit Suisse, representing a yield of 6.8%.

There appear to be fewer potential buyers for larger lot sizes, in excess of £50m, and as such there have been no deals of this magnitude in the first half of the year. Instead, there has been a shift towards buyers, particularly overseas purchasers, seeking secure, 15-year plus income in single lets and good locations. However, there is relatively little of this type of product currently on the market.

Audrey Dobson, senior director in CBRE’s Glasgow office, said: “With the current demand levels the lack of new office development in the city is a real concern. Whilst there are several good quality refurbishments, these will only offer short term respite. With the political uncertainty around a second independence referendum now less of a concern, Glasgow may be a beneficiary as employers seek to take advantage of the significant skilled labour pool and operating costs which are lower than many competing regional locations.”


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