Rents rise in lower grade property amid prime space shortage
Office space is at a premium
Rents for ’Grade B’ office space jumped 19% in Scotland over the last year as prime space availability dwindles and firms turned to older buildings.
Colliers International’s National Offices Rents Map for 2019 shows Scotland’s Grade B rents experienced the highest growth of any part of the UK, and far above the UK average of 5% rental growth across both Grade A and B office markets.
Glasgow and Edinburgh city centres saw rental growth of 18% and 19% respectively, but the biggest rise was in ‘out of town’ Edinburgh, where Grade B office rents increased by 44% year on year.
Mark Taylor, Head of National Offices, Colliers International, said: “The lack of new, prime offices coming onto the market in Edinburgh and Glasgow means growing businesses are having to look at older properties, and landlords are in a good position to negotiate considerably higher rents on anything that can realistically be refurbished to meet the high standards most tenants now want.
“This is not only reflected in rents: our data shows that the incentives that landlords are having to offer to get tenants to sign are also relatively low in Scotland, compared to other UK cities.
“The latest rent increases will further incentivise investors to back building projects in Edinburgh and Glasgow. The question is, will planning authorities help the market keep pace with demand? Either way, with relatively little in the pipeline and no sign that demand is slowing, we should see further rent increases north of the Border in the current year.”
Grade A office rents rose 8% in Scotland over the last 12 months, with the Edinburgh outskirts once again leading the way at 19% growth. The UK regional office market (excluding London and Republic of Ireland) has seen average year on year rental increases of 5% for both Grade A and Grade B office space between 2018 and 2019.
In some areas, the rental growth was relatively modest: outer London saw rents gain just 2% for both Grade A and B, while the rest of the South East of England saw just a 1% increase in Grade B office rents.
Colliers’ report also shows a number of regional cities moving further into the £30+ per sq ft region, with Bristol (£35 per sq ft), Manchester (£37.50 per sq ft), Edinburgh (£35 per sq ft), and Glasgow (£32.50 per sq ft) all seeing increases in prime rents of between 5 and 8 per cent year on year.
Mr Taylor concluded: “Major regional cities such as Manchester and Edinburgh continue to see prime headline rent increase year on year, bringing them comfortably and sustainably in to the ‘thirty’s club’.
“The perhaps untold story however, is if you consider net effective rents – i.e. the total amount of rent that a tenant will pay over the entire length of their lease, taking into account incentives etc – we are seeing a number of regional schemes breaking the £30 per sq ft ceiling for prime rents.”