With a spike in lease expiries, Grade A offices will be a prime concern, says Bob Serafini

A study by property advisers Ryden predicts a spike in lease expiries in Glasgow in 2020 and 2021 which will fuel a new phase of office development in the city.

The analysis for Glasgow Chamber of Commerce and intended to inform city centre economic development strategy, looked at 200 occupier leases and the length they have to run.

Companies often review their property options ahead of this trigger, either renegotiating with existing landlords or more commonly moving to better quality premises. The pattern is tracked by developers and agents to ensure they start and finish their projects correctly.

Partner Dr Mark Robertson told a clients’ briefing that the three new build office developments completed last year – 110 Queen Street, 1 West Regent Street, and St Vincent Plaza – were well timed and able to accommodate the most recent upheaval, but leases involving more than one million sq ft of space were due to end in about five years’ time.

With these three new office towers almost fully let, it would be reasonable to expect schemes with planning consent – like Broadway Two and Atlantic Square – to be getting under way, given it takes more than two years to complete one of these giant buildings.

However, for the first time many agents can remember there are currently no new speculative schemes on site. Instead of new build, a spate of refurbishments is under way – providing Grade A standard by upgrading existing older properties. A total of nine sites involved include 9 George Square, 123 St Vincent Street, 100 Queen Street, 100 West George Street and 65 West Regent Street.

Exactly the same thing happened when bank funding dried up after the crash – refurbishments like George House and 155 St Vincent Street led the return to normality.

Robertson dismissed an often-made claim that the "requirements" for new space circulating in the market included "the same timewasters year after year". Of the 16 major occupier needs notified in 2015, seven took space, two expanded in their current buildings, four re-geared their leases to expand, two are still active, and only one has died away.

Rental growth in the sector is forecast to improve by a compound 11 per cent by 2020, again helping the prospect of new development.

Not so fortunate is the industrial sector, where occupational demand is good but Glasgow’s supply has been trending downwards for years into increasing obsolescence, rents of £8 per sq ft rather than the present £6.50 are needed to justify new development, and a change in rating of empty property looks like hitting hard.

Industrial partner Alan Gilkison said where properties did not have a future, there was no doubt we would see demolition rather than pay for standing empty. He called for and end to the present uncertainty and more clarity on how local authorities would treat new build stock after the initial rates free period expired.

"We certainly know of clients who were going to build four industrial buildings but are now going to test the water with one," he said. "We also know of a client out for funding on a development where this additional cost burden has put the funder off. There is a degree of uncertainty that the development market does not need just now."

Robertson said the latest report from the respected De Montfort University survey found that only four per cent of lending in property last year was for development. If you strip out London, and buildings which were pre-let, then what is left is negligible: "There really is a major funding problem and drought in the UK in terms of funding the next property development cycle, which is one reason why the focus is back on the refurbishment route. It is not about the market, it is the funding."

Ryden’s half yearly market presentation also highlighted a number of other topical issues.

Land Securities’ stalled scheme to double the size of Buchanan Galleries shopping complex is unlikely to see a start "for the foreseeable future", according to retail partner John Conroy, due to rail work at Queen Street continuing until late 2017.

He also said two new hotels were on the way at the bottom of Hope Street, Motel One’s 330 room facility at Oswald Street and a new player on the Scottish scene, Majorca-based hotel group Melia, aiming to establish a 200 bedroom hotel on the opposite corner.

Some UK institutions have been "sitting on their hands" in terms of investment since the 2014 independence referendum, according to Dr Robertson. He said they remained a bit unsure of the long term direction of the country’s constitution, attaching a risk premium to prospective Scottish purchases compared to those in Manchester or Birmingham: "The recent election result does leave us with uncertainty in terms of institutional investment market."

However, capital markets partner Ian Dougherty said that in the event of a vote to stay, he foresaw a bit of a bounce returning to the investment market.

A Brexit survey of Ryden clients in the West of Scotland showed 80 per cent wanted to remain, nine per cent to leave the EU, and 11 per cent were undecided.

The firm completed 500 deals, involving a total of five million sq ft of property in 2015.