End in sight for Scotland’s post-Brexit office downturn

The latest Big Nine report from Bilfinger GVA shows that city centre take-up in Glasgow was 97,085 sq ft for the quarter, down 34 per cent on the five-year average.

Out-of town take up also saw a sharp drop, at just 40,834 sq ft against the average of 80,661 sq ft.

However, Alison Taylor, director and head of Business Space in Scotland for Bilfinger GVA, remains optimistic that take-up will be sustained and improve in the final quarter of the year.

She said: “There have been some signs of recovery in sentiment since the Brexit vote. This includes the premium spirits company Edrington’s decision to move its global HQ to the newly redeveloped 100 Queen Street taking 29,900 sq ft and representing 59 per cent of the building, in a significant pre-let of the last quarter.

“The Government Property Unit’s requirement is causing considerable noise in the marketplace but outwith that we can confirm other occupiers have shortlisted options and likely to finalise selections during Q4, with decisions pending amounting to circa 180,000 sq ft of demand.”

Whilst Edinburgh’s city centre also struggled during the quarter, with a take-up of 76,380 sq ft down 48% on the five-year average, it bucked the trend out-of-town with a 13 per cent increase in take-up.

Peter Fraser, Associate Director for Bilfinger GVA, said: “Take-up in Q3 tends to be lower than the other quarters but despite a particularly poor quarter we know that around 180,000 sq ft is under offer and likely to convert in Q4, ensuring that final year take-up will keep up with the past two years. This includes investment managers State Street for 65,000 sq ft at 1-7 Exchange Street, while it is also believed that The Chris Stewart Group may be close to agreeing pre-let terms on the 60,000 sq ft Mint Building on St Andrew Square.

“The GPU’s massive requirements are also good news for Edinburgh take-up but will likely expedite supply shortages in the city. We estimate there is around 350,000 sq ft of ‘good quality’ city centre space currently on the market, with a similar volume of new or refurbished space being delivered over the next 18 months. That’s a pipeline of c. 700,000 sq ft. Set against a backdrop of well over 1.2M sq ft of leases expiring in the next 5 years the dynamics appear right for new speculative construction to begin.”

Despite the uncertainty created by the referendum, overall rental levels across the UK have held up with no drop in headline rents. The average across the Big Nine UK cities is £28.00, up 3.1% from the same period in 2015. It is predicted that the positive effect on headline rents will continue due to the Cabinet office’s requirements for GPU across most Big Nine cities in the first half of 2017.