Q1 2017 creates “pinch point” in Glasgow office market

A concentration of occupier activity around mid-sized office space and a lack of city centre supply has created a “pinch point” in Glasgow’s commercial property market, according to analysis from Knight Frank.

Figures for the first quarter of 2017 show that there were 101,000 sq. ft. of take-up in the city’s core area; slightly lower than the five-year average of around 132,000 sq. ft., once pre-lets are discounted. This compares against 136,404 sq. ft. during the same period last year, after Morgan Stanley’s 154,814 sq. ft. pre-let of 122 Waterloo Street is removed.

Professional services and engineering companies were the most active sectors in the first three months of the year, while the two biggest deals took place at St Vincent Plaza – further diminishing the availability of Grade A space with larger floorplates.

Engineering group Mott MacDonald secured 34,515 sq. ft. in the speculatively-developed office building and Wood Group’s renewable energy consultancy, Sgurr Energy, acquired 17,249 sq. ft..

Knight Frank also highlighted high levels of demand from occupiers looking for between 7,000 and 10,000 sq. ft., which could lead to an undersupply of quality office accommodation of this size. A lack of new-build commercial properties coming on stream over the next 24-36 months is leaving very few choices for businesses that require Grade A space.

Colin MacKenzie, office agency partner for Knight Frank in Glasgow, said: “A real pinch point could emerge in Glasgow city centre for occupiers seeking between 7,000 and 10,000 sq. ft.. The level of activity in this size bracket is very strong and, should the existing requirements all successfully relocate, these businesses will be left with just a handful of options to choose from.

“Occupiers could also be faced with more bullish landlords, both in re-gear negotiations and relocations, as they move to secure the last of the best-in-class space in the months ahead. They may have to consider going over more than one floor, which many may be reluctant to do.

“On the other hand, landlords with larger floor plates may be able to benefit from this lack of supply – they’ll be able to offer the flexibility of splitting floors to accommodate further demand. Current market dynamics could also help developments outwith Glasgow’s core, as occupiers look for more functional space which they may struggle to find in the heart of the city.

“What’s clear is that both occupiers and landlords have a lot to contemplate. Early consideration and engagement of both their business and property needs is imperative to secure Glasgow’s best available space.”