Strong start to 2012 for Edinburgh and Glasgow offices – DTZ
Continuing our look at DTZ’s latest research into regional office markets, the Edinburgh and Glasgow office markets have enjoyed a strong start to the year. Take-up of offices in Edinburgh city centre during Q1 reached 127,000 sq ft, which is the highest quarterly total for two years. The 48,000 sq ft letting to Brewin Dolphin at Atria boosted the total figure.
While the occupier market remains fragile, DTZ notes that the finance sector has recently become more active in Edinburgh and says that “current requirements do suggest that annual take-up in 2012 will be greater than 2011”. A spate of lease expiries around 2014-16 could lead some occupiers to relocate early, in order to secure their preferred office buildings, it adds.
Estimated quoting terms for prime rents and incentives in Edinburgh city centre are judged to have remained at £27.50 per sq ft. Brewin Dolphin, which is bringing together a number of offices at the Atria site, is reported to have paid £30-£32 per sq ft for its pre-let, but the details of the fit-out and rent-free period have not been substantiated, DTZ notes.
Current specific requirements for Edinburgh offices include 75,000 sq ft for Blackrock and 35,000 sq ft for the NHS. DTZ thinks further pre-lets are likely if suitable space is not available – for example, Cairn Energy (seeking 50,000 sq ft) could go down this route, it adds.
Grade A availability in Edinburgh is expected to continue to fall as investment capital remains limited for future refurbishments. “Our central scenario is for less generous lease details and incentive packages over 2012, with a pick-up in prime headline rents in 2013,” DTZ says.
In Glasgow, city-centre take-up in Q1 was at its highest since Q3 2010, at 123,000 sq ft. Most deals involved Grade B space, as has been seen in recent quarters. The Q1 figure was boosted by several fourth-quarter deals that eventually completed during the first quarter of this year.
As a result of the marketing of an additional 115,000 sq ft of Grade B space, the total availability of city-centre offices in Glasgow rose slightly during Q1, and it is expected to dip only slightly towards the end of this year as the volume of deals is forecast to match the release of existing space, DTZ says.
The largest current city-centre requirement is for a 200,000 sq ft design-and-build scheme for Scottish Power, for which a developer competition is under way. The utility is thought to have found a preferred site for the building, which will be its new headquarters.
Prime headline rents remained at £28.50 per sq ft in Q1 and incentives held firm at around 12-18 months on a five-year term. DTZ says prime rents for Glasgow offices are unlikely to rise until 2013, it adds, when there is some potential for pre-lets from larger occupiers.
Prime office yields in Edinburgh and in Glasgow are thought to have moved out 25bp in Q1 to 6.25% as the sector is not popular with funds, the firm says. Prime yields are expected to remain stable over the summer in Edinburgh, but to move out another 25bp in Glasgow.
