Squeeze is on in market as firms fight for modern offices to attract best staff, writes Bob Serafini
Real estate issues have moved up the corporate agenda over the past 12 months in a trend expected to continue throughout 2016. Businesses have paid attention to warnings about the shortage of new Grade A space and started to address their property needs. Both Edinburgh and Glasgow have seen a spate of high profile lettings in prime addresses. Many realise the agents aren’t kidding this time round.
All the capital’s yet-to-be-completed tower Quartermile was pre-let to Scottish unicorn Fanduel and American semiconductor designer Cirrus Logic, attracted by proximity to the university.
Glasgow, traditionally a harder sell during construction, had three new developments completing last year, and big blue chip names such as Deloitte, Grant Thornton and law firm Brodies booked into 110 Queen Street right away. Weir Group and broadcaster Global were first into 1 West Regent Street and have since been followed by Arup, FDM, Shepherd & Wedderburn and CMS. St Vincent Plaza has come good with KPMG, Whyte & Mackay and Registers of Scotland.
Glasgow therefore had a strong last quarter and this has continued into 2016. While lease expiries may have spurred Edinburgh firms such as Citi Group, Martin & Currie and Pinsent Masons to re-gear the deal rather than move, the evidence is that companies realise they have to up their property game. It is now well established that they need a quality workplace to attract and keep staff.
Peter Fraser of Bilfinger GVA said office take-up in Edinburgh was the highest for a decade in 2015, with 160 deals totalling 846,295 sq ft. This includes JP Morgan Chase in two buildings at Lochside View and HSBC nearby, in a resilient performance for the out-of-town market.
"Many companies are addressing real estate issues in advance of lease ends, but these moves were through growth or business consolidation," he said.
His analysis shows TMT (technology, media and telecomms) was the most active sector for the third year running, increasing market share from 17 per cent to 28 per cent, with the city’s traditional saviour, financial services, accounting for only eight per cent. "While 327,000 sq ft is under construction, 73 per cent is pre-let and delays at The Haymarket mean it may be 2018 before the first office building there is completed," said Fraser. "As a consequence, 432,000 sq ft of speculative development is expected to start this year. Given limited city centre availability, attention is returning to peripheral locations such as Edinburgh Park.
"Another destination where fortunes may be about to change is Leith. With very limited new stock completing before late 2017, occupiers needing to move may have to consider peripheral locations. As a result we should start to see rental growth right across the city."
JLL agrees that access to talent will become a more important driver of corporate location strategy. Director Ben Reed forecast HR and real estate objectives would increasingly converge: "There is a talent paradox driving increasing competition for highly skilled labour, with companies becoming more forensic in analysis of talent clusters. In Edinburgh, offices near main transport nodes like Haymarket will experience strongest demand.
"Building and workplace design is fast emerging as a critical tool to support strategic objectives around talent attraction and retention. The next wave of development here will focus on providing welfare space for staff, including shower, changing and drying facilities for cyclists."
Advisers also draw attention to the impact of accounting changes in 2016, when leases come on to balance sheets, effectively inflating assets and liabilities.
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