Shortage is key problem
Office market ‘flourishing’ despite uncertainty
- Government urged not to regard sector as “easy target”
- Overseas investors in for long term
- New projects in pipeline
Scotland’s office market is continuing to withstand the Brexit uncertainty and faces a prolonged shortage of top quality accommodation, according to property experts.
Overseas investors, mainly from the Middle East and Far East, are still pouring money into Edinburgh in particular because of its importance as a capital city.
A Korean company is poised to complete a £75 million deal for a city centre building, a seminar organised by Knight Frank was told today.
Edinburgh is also seen as “cheap” compared to other European cities, partly a result of the fall in sterling which is helping to encourage overseas interest and accounts for most of the investment in commercial property. The city is poised for a period of strong rental growth.
The city had spent 10 to 15 years looking for new entrants and the explosion in the technology sector has provided it, said managing partner Alasdair Steele.
Collaboration between the city council and the university, as well as joint working among those in the sector in incubators such as Codebase was helping to build momentum.
Landlords were encouraged to chase this market, particularly in the city centre where a number of key buildings are being switched over to serviced apartments which are less risky.
Edinburgh Park is expected to benefit from the squeeze on city centre space. Sainsbury’s Bank, JP Morgan and HSBC were notable recent lettings, However, the location was less attractive to technology firms.
“These guys like funky space and are likely to be drawn to vibrant areas such as Quartermile,” said Mr Steele.
Guests heard that both Edinburgh and Glasgow were performing well in spite of the uncertainties around the EU referendum vote and the possibility of a second Scottish independence poll.
Edinburgh is expecting deals this year to hit £400m, the highest since 2006.
This was creating a growing shortage of Grade A accommodation, with Edinburgh’s supply at its lowest since 2012, down 44% in three years, and Glasgow down 62% since 2013.
There is no speculative development in Glasgow and it will be two years before any that is planned comes on stream. This is fuelling a demand for refurbishments, although some expanding companies may wait for the new accommodation.
The Finnieston area of Glasgow, once a rundown quarter, is now thriving as a “hip” place in which to work and live.
Across the city there are “three to four” deals in the pipeline from overseas investors.
In a research paper, the company said: “Office investment activity in the first half of 2016 is already above that recorded throughout all of 2015. Most notably, overseas buyers are showing greater interest. We anticipate that the lower value of sterling will support further interest over the coming months.”
While noting the “prolonged period of uncertainty now likely” and that “market confidence will doubtless be undermined”, it said there was no negative fall-out from the 2014 poll.
“In the two years since the Scottish independence vote of 2014 both occupier and investor markets have flourished,” it said.
Responding to a question on whether the Scottish government’s tax policies were hindering or helping the market, Mr Steele said they were “not helping”.
He said: “In general there is a feeling that the Scottish government sees commercial property as an easy target.
“We hope the [Scottish] government realises the importance of the investment side of commercial property.”
The meeting also heard that public sector activities could be drawn to Edinburgh’s Haymarket project, while Leith was ruled out as an office location, even if the tram line was extended.