Business as usual for Central Belt office property market after EU vote

Across the nine regional city markets in the UK monitored by CBRE, overall take-up in the first nine months of 2016 was just under 3.8 million sq ft. This is 10per cent lower than the 4.2 million sq ft taken in the same period of 2015, but only 1.5 per cent under the five year average from the first nine months of the last five years.

These headline figures obscure a more varied pattern of take-up across Scotland. Some cities have fared better than others relative to recent past performance. For example Glasgow has improved levels of take-up this year when compared to its five year average whilst Edinburgh is almost right on trend. Leasing volumes in Aberdeen, however, remain subdued by the low oil price.

Emma Jackson, associate director in UK Research at CBRE, said: “This is the first full quarter’s occupational activity since the EU referendum at the very end of the second quarter. Concerns about the referendum itself, ahead of the vote, do not appear to have unduly deterred occupiers from continuing their searches for new space. For many occupiers, their searches have been initiated due to a forthcoming lease break or expiry so referendum concerns will play little part in their decision relating to office moves.

“Requirements continue to circulate, so it still remains to be seen the extent to which the Brexit vote will dampen occupier demand in the regions.”

Glasgow

Whilst the third quarter of 2016 witnessed the lowest leasing volumes of the year at 97,085 sq ft, it is virtually the same total as recorded in Q3 2015 in Glasgow. The city did, however, have an exceptionally strong first half of 2016, aided by the Q1 pre-let to Morgan Stanley. With Q3 data now accounted for, overall take-up for the year to date stands at 529,067 sq ft, just 6% below 2015’s full year total.

Total available supply at the end of the third quarter stood at 1.45 million sq ft, down 15 per cent from the position at the end of 2015, and 22 per cent lower than twelve months ago. The new build stock that completed in 2015 has been very popular with occupiers and has resulted in the volume of new build stock available in the city centre falling by more than 50% over the past twelve months, standing at just 279,479 sq ft. No new stock is on the immediate horizon to replenish this total.

Given the shortage of Grade A supply in Glasgow, rental levels have increased over the course of 2016. For the best quality space in the city centre, an occupier would now be expected to pay up to £30 per sq ft as the headline rent. Prime rents are now well ahead of the previous peak in 2008 of £28.50 per sq ft.

Audrey Dobson, senior director in CBRE’s National Office Agency team in Glasgow, commented: “Demand has been steady throughout the year and despite low leasing volumes in Q3, we have seen a marked increase in the level of occupational demand particularly from companies seeking larger amounts of space. The level of available new build stock in the city centre is worryingly low due to the dearth of available funding, however on a positive note it is creating the environment for upward rental pressure.”

Edinburgh

Take-up in Q3 2016 totalled 122,596 sq ft; whilst this is the lowest quarterly total of the year so far, it is still in line with the recent pace of occupier leasing activity in Edinburgh. Take-up for the year to date is 565,218 sq ft, just 1 per cent lower than the total over the same period in 2015.

The largest deal of the quarter was at Quartermile 4, where Cirrus Logic acquired a further 22,575 sq ft to add to the 70,000 sq ft it signed for at the start of 2016. Indeed, the technology sector continues to be a dominant market in the city, accounting for almost a third of take-up so far this year.

Availability continued to fall, particularly Grade A space. Overall availability across the city is down to 1.22 million sq ft, 16% lower than at the end of 2015. This is the lowest overall level of vacancy in Edinburgh ever recorded by CBRE.

With low levels of supply, further pressure has been placed on rents which have moved up to £31.50 per sq ft.

Stewart Taylor, senior director in CBRE’s National Office Agency team in Edinburgh, said: “Whilst take-up levels in Edinburgh over the last quarter have been in line with previous years, availability has just been recorded at its lowest ever level at 1.22 million sq ft, 0.9 per cent of which is Grade A, down 20 per cent since the end of 2015. With a further major pre-let in the pipeline, the incentive on occupiers to commit to space years ahead of a requirement continues to increase.”

Aberdeen

Total transactions during the third quarter of 2016 reached 66,174 sq ft, making it the best performing quarter in Aberdeen so far this year.

The total take-up volume for the first nine months of 2016 was 152,683 sq ft, significantly below average levels for this time of year. The low oil price continues to impact demand however increases in Crude prices to $51, from a low of $33 in January, have signalled a more optimistic picture for the year ahead.

The largest transaction to take place in Q3 saw serviced office operator Citibase acquire a 22,082 sq ft west end office building at 9 Queens Road.

Total available supply at the end of the third quarter reached a new high of 2.45 million sq ft. This represents a year-on-year increase of 45 per cent from Q3 2015 and a quarter-on-quarter increase of 9 per cent.

Prime headline rents in Aberdeen are once again unchanged at £32.00 per sq ft, with an absence of recent prime transactions to challenge the current level. As yet there are no signs that prime headline rents have suffered due to the low oil price, and are forecast to remain stable throughout the remainder of the year.

Derren McRae, managing director of CBRE in Aberdeen, said: “Despite a continued subdued market, we have enjoyed the best quarter of the year in Q3 with take-up levels reaching 66,174 sq ft. Nevertheless supply levels are continuing to increase and as a result we are seeing occupiers capitalising on more flexible approaches being offered by the majority of landlords.”