Demand drives rents beyond £30 per sqft
for the first time
By Adrian Morrison
OFFICE rents in Scotland are set to break all previous records in the coming months, in spite of growing concern over the health of the property market and wider economy.
Prime office rents in Glasgow will rise 5.5% to £29 per sqft, according to surveyor Lambert Smith Hampton, while there is rumour of a deal being struck in Aberdeen that will drive headline rents forward by almost 2% to £27.50 per sqft.
In Edinburgh the rental market is reaching new heights, too. Developer Castlemore will end several years of difficulty by imminently completing a deal with Microsoft to let two floors of its mammoth Waverley Gate scheme at a new record rent.
The deal, in the former GPO building in Waterloo Place, represents a 9% rise to £31 per sqft. This is the highest rent ever achieved for an office letting in Scotland.
"It goes back to the traditional issue of supply and demand," said David Smith, the Scottish head of national surveyor Lambert Smith Hampton.
He continued: "Over the next two years in Glasgow, for example, a number of occupiers will come to the end of their leases in buildings no longer suitable for modern requirements. They will have to move."
This year, the 99,000sqft of new prime office space being made available in TaylorWimpey and Kenmore's Cuprum scheme on Argyle Street will be the only sizeable amount of new space coming on the market. To put this in context, grade-A (i.e. prime office) take-up last year in Glasgow was 237,000sqft.
The professional sector, with lawyers and accountants at the forefront, will lead the charge for new space in Scotland's big two cities. In Glasgow, law firms MacRoberts and Maclay Murray & Spens both have lease renewals shortly, and will want to follow rival McGrigors into new space. Accountant PriceWaterhouseCoopers will also take new space in the next nine months.
In Aberdeen the oil sector is driving demand. Bill Duguid, regional managing partner of surveyor Ryden in Aberdeen, stated: "In the west end of the city we have seen meteoric rental rises. Eighteen months ago, headline office deals were still below £20 per sqft. We are now looking at £27 per sqft."
This is likely to be pushed even further forward as developer Esson Properties is currently in discussions with an unnamed tenant to take space at its Queens Road scheme at £27.50.
Lambert Smith Hampton also predicts that Scotland will have some of the largest logistics transactions ever seen, following the opening of Tesco's one million sqft distribution centre in Livingston last year.
Industrial development giant ProLogis has outline planning permission to develop one million sqft of warehouse and distribution space at Newhouse on the M8. At nearby Eurocentral in Mossend, Tritax Assets has begun work on 244,000sqft of industrial units and further speculative development is anticipated at Barratt Developments's Glasgow Gateway, on junction 1 of the M74.
It is believed that up to half a dozen large-scale distribution deals will happen throughout 2008 and into 2009, with supermarket retailers Morrisons and the Co-op likely to take new premises.
Smith added: "Retailers have been operating in a difficult environment recently. They see upgrading their logistics operations as a way to cut costs and improve margins. The Co-op in Harthill, for example, operates out of three buildings."
Despite talk of retailers scaling down their distribution operations to more easily service the disparate nature of internet shopping, the trend over the last five years has actually been the reverse. Large regional distribution centres have become the des industrial res.
