Office market in three key Scottish cities strong, new analysis reveals
The commercial office market in Scotland is proving to be strong with the three biggest cities seeing a number of record deals.
Aberdeen has seen its biggest office deal in three years, Glasgow its highest quarter three take up in over 10 years and in Edinburgh investment levels are ahead of the long term 12 month average.
Scotland also offers good value to investors, with Glasgow prime office yields at 5% net initial yield and Edinburgh at 4.75%. Yields in Europe are comparatively ‘hot’ just now with prime office yields in Germany being 2.9%, 3% in the Netherlands, 2.8% in France and Switzerland, and 3.5% in Spain.
The analysis from real estate firm CBRE covering the third quarter of 2019 shows that office take-up in Edinburgh reached 134,274 square feet, bringing the total for the year to date up to 497,668 square feet and the 12 month total to 703,771 square feet.
Despite a lower level of take-up than recorded in the previous 12 months, the second highest level recorded since 2008, the acute shortage of accommodation at all levels of the market is maintaining the pressure on both headline rents and incentive packages.
The city centre Grade A vacancy rate now sits at 1.84% or 337,596 square feet with overall Edinburgh-wide supply currently at 1,282,815 square feet, down just over 75,000 square feet from last quarter due to take-up and lack of new stock coming to the market.
‘We expect the upward trajectory of headline rents for the best new build and second hand space to continue. Levels of office take-up in Edinburgh remain encouraging, with 16 deals surpassing the 10,000 square feet mark. A number of deals in the pipeline are expected to complete by the end of the fourth quarter 2019, and we anticipate the total take-up for the year will be close to 700,000 square feet,’ said Beverley Mortimer, senior surveyor at CBRE.
The capital market also continues to prove popular with investors attracted by the market dynamics, with office investment volumes for the year to date materially ahead of the long term 12 month average.
The third quarter of 2019 saw 122,770 square feet of office take-up in Aberdeen, including the city’s largest deal in three years with the letting of 51,356 square feet at B3, Aberdeen International Business Park, to Oceaneering. The figure represents an increase of 27% when compared to the 96,819 square feet transacted for the same period in 2018, and brings the total for 2019 up to 266,466 square feet.
‘Momentum in the Aberdeen office market continued into the third quarter. The Aberdeen International Business Park deal demonstrates that there continues to be excellent opportunities in the market for occupiers to upgrade their accommodation without necessarily having to increase occupational costs,’ said Derren McRae, head of CBRE in Aberdeen.
‘Looking ahead to the end of 2019, we are of the view that the 400,000 square feet mark recorded in previous years will be surpassed as a consequence of transactions scheduled to complete in the fourth quarter,’ he added.
The report says that office take-up in Glasgow for the third quarter of 2019 was exceptionally strong, totalling 352,211 square feet, the highest level of third quarter office take-up in over 10 years and bringing the year to date total to 611,712 square feet.
Overall Glasgow city centre office supply has risen slightly and now sits at 1,082,569 square feet, a vacancy rate of 8.07%, with a further 185,222 square feet rumoured to be under offer. As with previous quarters, a concern that continues to trend is the lack of Grade A office supply in Glasgow, with just 6,000 square feet currently available on the market representing a vacancy rate of 0.04%.
‘The Glasgow office market performance for the third quarter was exceptional. Occupiers continue to be drawn to ‘best in class’ offices. Overall, demand for office space in Glasgow remains high, and we are optimistic for a strong end to the year, with the total take-up for 2019 expected to bypass the five year average of 700,974 square feet,’ said Alistair Urquhart, associate director at CBRE.