Signs of pick-up after plunge in real estate market
The huge Virgin Money development in Bothwell Street Glasgow is among those that have been delayed
Rentals remain steady in Scotland’s commercial property market in a sign that demand for office space is holding up.
There are also indications that investors in the Far East will be active in the UK “as and when” the market stabilises as currency differentials remain attractive.
Real estate adviser CBRE’s second quarter report, covering the lockdown months, confirms earlier expectations of imminent acquisitions, but also reveals the sharp plunge in activity during the lockdown.
The global health pandemic has pushed back completion dates on office developments in Edinburgh, such as Capital Square and New Fountainbridge, and in Glasgow the developments at Atlantic Square and 177 Bothwell Street.
Stewart Taylor, head of the firm’s Scottish office agency business, said: “The offices sector, along with every other sector, has not emerged unscathed from the COVID-19 pandemic.
“The figures are unsurprising, particularly as buildings couldn’t be viewed or surveyed. If anything, activity was actually better than expected.
“What has been encouraging is that despite an industry-wide debate on how we will work in the future, occupiers have continued to progress acquisitions and the last three weeks have seen a marked increase in the speed at which negotiations and deals are progressing.”
He added: “While offices in the future may look different and may be smaller than anticipated at the start of 2020, the desire to have an office base remains and in fact much of what we’re seeing is simply an acceleration of trends that were already occurring – a flight to the best quality space with the best wellness credentials.
“With the delay in the completion of new buildings, the critical shortage of new space in Edinburgh and Glasgow has simply been exacerbated. This, coupled with positive employment forecasts for the regions, means we don’t foresee any impact on headline rental levels.”
Steven Newlands, executive director in the investment team, added: “Unsurprisingly, the property investment market has also been hugely affected by the outbreak and has experienced a quiet quarter in terms of volumes.
“Controls put in place by the government meant that activity was almost non-existent other than with transactions that were well progressed prior to the start of lockdown.
“We expect transaction volumes to increase in the third quarter as we exit lockdown and then accelerate further in the fourth quarter of the year.
“A number of international investors appear encouraged by the progress elsewhere in the world where there are signs of a return to ‘normal’ life. It is likely that outbound capital from the Far East will be active in the UK real estate investment market as and when the UK stabilises as we predict the currency differential will remain attractive.”
Over the second quarter of the year, office take-up in Edinburgh totalled 26,876 sq ft, an 84% drop from the same period in 2019.
This brings the take-up total for the first half of 2020 to 157,506 sq ft, which is 57% down on the first six months of 2019 and a further 68% down against the five-year average of 488,218 sq ft.
In terms of supply, there has been an 8% rise from the previous quarter’s supply figure and a 21% increase on the year-on-year supply figure.
Take-up for the Glasgow office market totalled 61,305 sq ft during the second quarter of 2020, a 67% drop from the same period in 2019 and 69% down on the Q2 five-year average of 194,429 sq ft.
This brings the total take-up for the first half of the year to 256,573 sq ft, which is 17% down on the first six months of 2019 and a further 35% down against the five-year average of 397,125 sq ft.
Total supply within the city now sits at 1,642,346 sq ft, representing a 1% rise from the year-on-year figure.
In the second quarter of 2020, office take-up in Aberdeen totalled 32,847 sq ft, a drop of 69% from the same period in 2019.
This brings the take-up total for the first half of the year to 211,293 sq ft, which is encouragingly still 42% up on the first six months of 2019 and a further 5.5% up against the five-year average of 192,630 sq ft.
Supply in the city currently sits at 2,497,981 sq ft, down 11.6% from the first half of 2019.