Despite a year of uncertainty, the Scottish office market remains buoyant, with 2.3 million square feet of lettings in 2016 across Aberdeen, Edinburgh and Glasgow, 10% above the long term average.
The research data from the Savills office market watch report also shows that total office investment in the three cities in 2016 reached £565 million with public services, education and health the most active business sector in Scotland during 2016.
Key deals included the University of the West of Scotland pre-letting 225,000 square feet at the Eco Campus in Hamilton and Napier University taking 107,514 square feet at South Gyle Business Park in Edinburgh. S
Focusing on availability, Savills says in Edinburgh the sale of Kintore House in the final quarter of 2016, a 35,000 square feet former office building, for conversion into hotel use, added further pressure on the city’s office stock, leaving less than two years of supply remaining in the city centre.
However, despite total supply falling in Edinburgh and Glasgow in the 12 months to the end of 2016, total availability in Scotland increased by 19% due to Aberdeen’s available office stock increasing 51% over the course of the year to 2.65 million square feet.
The firm reports that at the end 2016, the top rents remained at £33.50 per square foot in Edinburgh, £30 per square foot in Glasgow and £32 per square foot in Aberdeen.
Savills says Scotland continues to see investment into its office stock and despite the total year end figure for 2016 being 9.5% down on the 10 year average, the firm reports prime yields held steady during the final quarter of 2016, with Glasgow and Edinburgh both at 5.5% and Aberdeen at 7.25%.
Focusing on the year ahead, with lower volatility in returns for the Scottish office market, compared to the rest of the UK), Savills suggests a shift towards income driven deals could result in Scotland outperforming other regional markets during 2017.
‘Given the political uncertainty faced throughout 2016, the Scottish market held firm and continues to do so. As office supply diminishes in Edinburgh and Glasgow rents remain strong, and by consequence, as does investor appetite for prime office buildings,’ said Nick Penny, head of Savills Scotland.
‘In Aberdeen, while take-up in the office market is subdued on the levels seen before the fall in oil price, activity is improving and the expectation for the first quarter of 2017 is good. Overall, all three cities could benefit from the ongoing shift by investors towards secure income,’ he explained.
‘With lower returns volatility for Scottish assets and yields remaining attractive in comparison to other UK regional markets, one of the biggest challenges going forward could simply be the lack of sizeable commercial assets north of the border to invest in,’ he added.
