Aberdeen offices rents remain at record high – CBRE
CBRE has remarked in its review of UK regional offices markets in the first half of this year that the pattern of activity on a city-by-city basis has been “more varied than at any point in the recent past”. In our first look at this research we focus on Scotland and Northern Ireland.
Demand for office space in Aberdeen has remained very strong, driven by the oil & energy sector, as the continued high oil price boosts employment in the sector and adds to requirements for Aberdeen offices. Take-up of offices in Aberdeen in H1 was 631,104 sq ft, well above the half-yearly average and already 44% above the annual long-term average of 438,239 sq ft. There is a severe shortage of Grade A stock, which is now at 27,304 sq ft and accounting for 5% of total availability. The lack of Grade A office space is likely to result in some Grade B stock being taken up, the firm notes, while energy-sector occupiers are having to seriously consider pre-let deals on development sites.
The lack of supply means that developers are able to secure 15-20 year leases on existing and proposed office space in Aberdeen, which is attracting the interest of institutional investors. Investors are also interested in funding speculative developments in partnership with local developers, CBRE says.
Rents for prime Aberdeen office space remain at a record £31.50 per sq ft. “We feel that if prime offices were to become available in the next six months we have no doubt that this current record rent will be improved upon. However the issue is that there is unlikely to be any prime Grade A space to become available to set what would become a new high for Scotland. The scarcity of Grade A supply will also have positive knock-on effect on take-up of secondary space and a reduction in incentives agreed,” the firm notes.
Meanwhile in Edinburgh H1 take-up was 32% above the half-year long-term average, at 471,881 sq ft; with demand for offices in Edinburgh led by the finance and consumer services sectors. Total availability is 2.73m sq ft, of which 18% is prime Grade A space.
CBRE says the supply/demand pendulum for Edinburgh offices is swinging away from tenants for the first time since 2007, and that occupiers with lease events coming up in the next 3-4 years are starting to consider relocation and renewal options now. “There is no question that the city centre is going to witness a shortage of supply,” the firm says. Prime rents for Edinburgh office space are at £27.50 per sq ft, but incentives have started to move in, it notes.
Demand for office space in Glasgow has been strong in terms of take-up, with the H1 total of 241,817 sq ft already 35% more than the same time last year. Occupiers are being cautious about costs, however, with lease re-gearing over the short and long term featuring strongly, “as occupiers are of the view that this is a way of obtaining the financial benefit of moving, without incurring costs associated with a big office move,” the firm adds. Demand in H2 is forecast to continue to come from the professional and financial sectors, with these firms expected to be keen to ensure the most efficient use possible of their floorspace.
A number of occupiers of offices in Glasgow have recognised that this market is also experiencing a squeeze on good-quality stock, and that the lack of Grade A stock is likely to continue to diminish given the lack of development funding, and have therefore been keen to advance their relocation plans, CBRE notes. The firm expects that current rents of £27 per sq ft for Glasgow offices will come under pressure if occupational demand declines further, with rent reductions of 5%-7% expected for buildings that are compromised in terms of quality or location.
The market for offices in Belfast has continued to dilute its reliance on government occupation, CBRE says, with public-sector occupiers accounting for just 8% of H1 take-up. More than 147,000 sq ft of space was signed in H1 compared with 117,000 sq ft in H1 2011 as demand remained resilient and the city continued to attract foreign direct investment, particularly in the financial services sector. Prime Belfast offices rents are steady at £12.50 per sq ft and should remain at this level for the rest of the day due to lack of supply, although the increased availability of second-hand space will put more downward pressure on secondary rents, the firm notes.
