Glasgow close to having no top grade offices to let
Office space in Glasgow is at a premium (pic: Terry Murden)
A critical shortage of top grade office space in Glasgow means it will take only one “modest” letting to leave the city with nothing to offer potential tenants or investors.
The first ever detailed survey of the city’s office market by real estate adviser CBRE has found that only 6,400 sq ft, or 0.02%, of Grade A space out of a total 2,067,464 sq ft is currently vacant.
Andy Cunningham, senior director, described the situation as “serious” and could deter companies and investors from coming into the city. He put the blame partly on the trend to convert offices to residential use, fuelled by the demand for city centre living and home working.
“There is a severe shortage of space at the top end of the market – it would take only one fairly modest letting before there is simply nothing available for occupiers seeking ready-to-occupy truly Grade A accommodation,” he said.
“This is a serious issue for companies coming to the end of their existing leases or considering locating in the city, meaning Glasgow could fail to retain or attract some key organisations and investment.”
He said the drop in available office stock can be explained partly by the trend towards converting offices to residential.
This has overtaken the pre-Covid trend of converting office buildings for hotel use.
Increasingly landlords with Grade B buildings, which need a big investment to bring them into line with their competitors, are reviewing their options in case they can find a higher value use for their asset.
CBRE recently acted in a deal that will see former government offices at Portcullis House on India Street demolished and replaced by build to rent homes.
“City centre living is being heavily promoted by Glasgow City Council via its City Centre Living strategy, which proposes to double the population to over 40,000 over the next 15 years,” said Mr Cunningham. “This sits well with Glasgow’s larger corporate occupiers who tend to hire well-paid staff on flexible contracts in the fintech sector for example.”
While there is more Grade B availability at 1,581,282 sq ft, or 7.05%, (of a total of 15,028,313 sq ft), the bottom end of the market is also under pressure with just 0.28% of the total Grade C space (5,328,086 sq ft) currently empty, equivalent to 631,129 sq ft.
Mr Cunningham added: “Older buildings, which are functionally obsolete and not financially viable for landlords, being taken out of the market is definitely no bad thing. It may create pressure on supply and lead to an increase in rents and this, alongside the strong demand for Grade A space, may encourage developers to build speculatively.”
In Glasgow there is currently 1.4 million sq ft of office space under construction however 81% of that is already pre-let or pre-sold to occupiers such as Barclays, HMRC, Virgin Money and JP Morgan.
“There are other buildings in the development pipeline, such as The Grid, Carrick Square and Broadway Central, that have planning consent and are ready to go but many require significant pre-lets or better market conditions to give the developer the confidence to commence construction.
Older buildings simply can’t compete in terms of technology and environmental features and will therefore face some costly compliance issues– Andy Cunningham, CBRE
“The Covid-19 pandemic has of course affected the market this year however activity in the third quarter was up by 42% from the previous quarter, showing some green shoots of recovery are evident.
“There were over 30 new requirements for office space in Glasgow in the third quarter as office occupiers sought to move to business space that is suitable for the needs of both their workload and, perhaps more importantly, their staff.
“Post-pandemic, we predict that sustainability will be firmly back on the agenda and will be a top priority for occupiers’ reviewing their real estate requirements.
“Older buildings simply can’t compete in terms of technology and environmental features and will therefore face some costly compliance issues.”