Work starting on Grade A plans

Tax plea as office schemes due on stream

Quartermile 3Property developers in Edinburgh are hoping the current uncertainty over Scotland’s tax plans do not derail the steady flow of investment into the city.

A number of developments are due to come on stream which will help meet demand for Grade A space and property leaders have appealed to the Scottish government not to impose tax and regulatory burdens that may turn off the vital supply of investment.

New projects include Capital Square (122,000 sq ft), funded by Hermes Real Estate, 2 Semple Street (37,500 sq ft), funded by GSS Properties; and Quartermile 3 (pictured above, 74,000 sq ft), funded by M&G.

Work is now under way on Semple Street (pictured below) which will provide speculative space. The site was acquired last year from Aberdeen Asset Management and with demolition work of the existing building underway, the main contractors will be appointed by the middle of April, with construction due to begin early June.

The office space over five floors could accommodate up to 350 employees. The retail space is divided into a 7,500 sq ft unit fronting Lothian Road and a dividable 3,000 sq ft unit on Fountainbridge.

Next in line are The Mint Building (60,000 sq ft) in St Andrew Square and the first building at The Haymarket development, Haymarket 5 (91,000 sq ft).

Scottish Property Federation chairman Chris Stewart told its recent conference that Deputy First Minister John Swinney had agreed to the creation of a Real Estate Forum to bring the industry and policy makers together.

Mr Stewart believes this will help Scotland attract vital capital and achieve the government’s economic ambitions.

Semple StreetMuch of the property development taking place in Scotland depends on money from overseas institutions and developers say it is important that the conditions – such as planning laws and levels of tax –  ensure this flow of capital continues.

Mr Stewart said: “External capital looks unemotionally on Scotland. It is deterred by political and policy uncertainty; it can be fickle and we cannot afford to be left behind.”

A report from JLL noted that Scotland has been the biggest magnet for overseas property investors into the UK after London.

Examples of deals that would have traditionally been secured by UK institutions, but have gone overseas, include 125-126 Princes Street, Edinburgh, bought by US venture capitalists Northwood Investors, and 74-77 Princes Street (pictured) by German group GLL.

Overseas investors contributed a greater proportion of the overall total funds supplied which fell from £3.2 billion in 2014 to £2.2bn last year.

More than half of the foreign money –  £1.3bn (59%) – went into Edinburgh and Glasgow and compares to £1.6bn (49%) in 2014.

During the same period, the proportion of UK money invested in Edinburgh and Glasgow commercial property fell from 51% (£1.6bn) in 2014 to 41% (£900m).

The higher proportion of international over domestic investment in Scotland is not reflected in any other UK region, outside of Central London, where the percentage of domestic investment was 35% in 2015.

According to CBRE, investment transactions in the Edinburgh office market totalled £380 million in 2015, marginally ahead of the previous year and pre-recession levels.

In the second half of the year there were seven deals including the sale of Standard Life House at 30 Lothian Road for £93.75 million (the largest transaction of the year), the multi-let 102 Westport for £32.2 million and the Sainsbury’s Bank HQ at 3 Lochside Avenue, Edinburgh Park for £19 million.

CBRE also noted a higher level of overseas interest in these properties, including a variety of sources from German, US,  Middle and Far Eastern investors.  As with other regional centres, interest from UK institutions appears to have cooled toward the end of the year.

The dynamics of limited supply, healthy take-up, a development lag and predicted rental growth, imply that current yield levels are sustainable for the foreseeable future.

The positive market momentum looks set to continue into 2016 with the sale of Atria, one of the largest office buildings in the city, due to complete this quarter.

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