DEMAND for office space has continued to recover in Scotland in the first half of the year, but the uncertainty brought by the independence referendum has led to a "prolonged pause" in activity during the summer.

The take-up of office space totalled 960,200 square feet (sq ft) in Scotland in the first half, compared with 791,800 sq ft in the opening six months of 2013.

Loading article content

The growth was driven by Edinburgh, where property firm CBRE found nearly 500,000 sq ft of office space changed hands. This was up 35 per cent on the long-term half-yearly average and 9 per cent ahead of the first half of 2013.

Growth in Glasgow and Aberdeen was found to have been more modest, but CBRE emphasised that demand for office space in the Granite City remained fierce.

It also expressed confidence in Glasgow's office sector, stating that while growth had slowed in the second quarter there has been an encouraging response to the three major speculative developments now underway.

Miller Mathieson, managing director of CBRE, said the referendum had brought an extended pause in activity during the summer, with both occupiers and investors putting commercial property decisions on hold until after the vote on September 18.

He said sellers have delayed bringing assets to market because purchasers expect prices to be marked down, due to the uncertainty posed by the referendum.

"As a consequence, we hit a relative impasse," Mr Mathieson said. "Yes, one or two things have happened, but the biggest transactions that could happen are on hold until Q4 effectively."

Asked how demand for offices will be affected by the result of the vote, Mr Mathieson said the "hardest bit for us to predict is how people will react if there is a Yes vote."

He explained: "There are so many unknowns economically in the event of a Yes vote that it will take people longer to decide how they are going to do it, how investors are going to react and how they are going to respond to it.

"Right now, for instance, I'm aware of several major transactions where parties are effectively agreeing contracts with a condition that if it's a Yes vote the contract gets completely renegotiated, whereas if it's a No vote they just sign on the dotted line and carry on.

"People are hedging their bets a little bit, that if it is a Yes vote they will not do the deal they have currently agreed."

But Mr Mathieson emphasised that a Yes vote will not cause activity in the office market to cease, but noted deals could be delayed and take a different form.

CBRE said the office market in Edinburgh has benefited from a diversification of company bases within financial services following the global crash, citing Tesco Bank, Virgin Money and the expansion of BlackRock.

Mr Mathieson also highlighted the development of the technology, media and telecoms (TMT) sector in the city last year, which accounted for 32 per cent of total office take-up (nearly 150,000 sq ft) in the first half.

He expressed surprise at the lack of speculative office developments in Edinburgh, albeit two projects are now underway at St Andrew Square and Quartermile.

CBRE found total office supply fell in Edinburgh by 8 per cent to 2.26 million sq ft, with the contraction putting continued upward pressure on rents.

In Aberdeen, CBRE found the average take-up so far this year, at 212,233 sq ft, was down 50 per cent on the previous six months, and 25 per cent below last year.

However Mr Mathieson said the bald figures do not tell the full story. "It's just a timing quirk. The reality is there are still major developments going on.

"The timing of the deals is giving the impression that the first half of the year is down."

CBRE found office take-up in Glasgow slowed in quarter two after hitting near-record levels in quarter one, with the first half total coming in at 267,786 sq ft.

Mr Mathieson said the city is seeing healthier demand and take-up than it has for a number of years, citing the strong response to the St Vincent Plaza, 1 West Regent Street and 110 Queen Street developments.