Review of Employment Land in South Ayrshire 2016

Review of Employment Land in South Ayrshire South Ayrshire Council August 2016 RYDEN South Ayrshire Employment Land Review August 2016 CONTENTS 1. Introduction 2. Economic & Property Market Context 3. Property Market Analysis 4. Planning Policy Review 5. Key Findings & Conclusions 1 Introduction 1.1 South Ayrshire Council instructed Ryden in May 2016 to undertake a review of employment land in South Ayrshire. 1.2 An employment land review is required to inform the preparation of the new South Ayrshire Local Development Plan (“LDP2”), which will establish the long-term vision and spatial strategy for the South Ayrshire Local Authority area. 1.3 The objective of this review, by Ryden, is to provide a commercial property perspective on the employment land supply and related planning policies, to sit alongside the Council’s employment land audit. This is, therefore, a strategic review and does not include a site by site assessment of employment land in the South Ayrshire local authority area. It will address: how well placed South Ayrshire’s employment land is to meet the needs of current sector trends; whether South Ayrshire, as a semi-rural region can be attractive for business and industry investment; Whether the LDP is fit for purpose in facilitating growth and development in emerging business and industry sectors (particularly small scale businesses, micro businesses and rural enterprise). 1.4 It is understood that South Ayrshire Council is commissioning a separate brief to review higher level economic trends, including the short, medium and long term economic outlook for Ayrshire and how the Council’s LDP review can respond to emerging economic opportunities and risks. 1.5 Following this introductory chapter the report is structured as follows: Chapter 2 – Economic & Property Market Context Chapter 3 – Property Market Analysis Chapter 4 – Planning Policy Review Chapter 5 – Key Findings and Conclusions 3 2 Economic & Property Market Reviews 2.1 This chapter provides the economic and property market context within which the review is being undertaken. Economic Review 2.2 The Scottish economy weakened during 2015 (Figure 1). Lead economic indicator such as purchasing manager indices suggest that this weakness continued into the early months of 2016. Scottish output expanded by 0.9% for 2015 as a whole, but growth fell to -0.1% in Q3 and only 0.2% in Q4. Ryden’s market experience suggests that a significant proportion of this decline is due to the contracting oil industry, which is affecting not only the north east but also supply chain and service locations across the country. Figure 1: GDP Quarterly Growth Rates 2007 – 2015 Q4 Source: Scottish Government 2.3 Fraser of Allander Institute’s central forecast (March 2016) is for Scotland to deliver 1.9% economic growth in 2016 and 2.2% in 2017. These forecasts have been downgraded to reflect the Institute’s view that both public sector spending cuts and lower oil prices are adversely affecting the country’s economic growth prospects. EY ITEM Club’s winter forecast predicts growth of 1.8% for the Scottish economy in 2016. These forecasts would reflect a positive upturn for the Scottish Economy in comparison 4 with the weak second half of 2015 and the currently poor lead indicators for early 2016. 2.4 The most recent Bank of Scotland Purchasing Managers Index (March 2016 PMI = 48.5) indicates a deterioration in business conditions in Scotland’s private sector. A fall from February is attributable to a sharp contraction in the manufacturing sector; the decline in service activity was more muted. Two consecutive months of a PMI below 50 is a worrying trend following the weak second half in 2015. 2.5 The Scottish unemployment rate for the three months December 2015 to February 2016 rose by 20,000 to stand at 171,000, equivalent to 6.2% and well above the equivalent UK rate of 5.1%. The Scottish claimant count was 2.5% for February 2016. 2.6 The Committee of Scottish Bankers confirms that the number of new business accounts opened during 2015 totalled 11,669; this is down by 1% on 2014. The largest share of new businesses (29%) was in the real estate, renting and other business sector. 2.7 The Insolvency Service reports a total of 260 company insolvencies in Scotland in the fourth quarter of 2015. This is up by 20% on the same period of 2014. During 2015 as a whole however, company insolvencies were 1.1% lower than 2014. 2.8 From a property market perspective, slowing growth is a concern. Recent and predicted economic performance had been stable, but the weakening position also means that Scotland is now under-performing the UK. 2.9 At a local level, South Ayrshire Council has commissioned a high level economic review for the local authority area, which will also inform the preparation of LDP2. A previous economic review was undertaken by South Ayrshire Council in August 2011 and this identified the following relevant information: There was an 8% decrease in job in South Ayrshire between 2006 and 2010, mostly in the private sector; Of the total 47,000 jobs in the area at the time, 33% were in the public sector, 15% in retail and 13% tourism. This accounts for 5 60% of all jobs, and reliance on the public sector is a concern due to cuts in public spending; Commuting out of the area is now a key feature (30%). Sectors identified as greatest potential for growth: Aerospace engineering – linked to Glasgow Prestwick Airport Renewables Tourism Property Market Context 2.10 Growth in the Scottish economy deteriorated during the second half of 2015 and is likely to have remained weak through the early months of 2016. Disinvestment by offshore companies in response to the low oil price is one factor in this apparent stagnation. Across the major Scottish cities, the office markets are moving in very different cycles. Offices 2.11 Across the major Scottish cities, the office markets are moving in very different cycles. In Glasgow, there has been strong strong Grade A office take-up and Edinburgh has witnessed near record levels of sales and lettings. Aberdeen faces a multi-year market adjustment as the development lag delivers new schemes into weaker occupier markets. 2.12 The Glasgow office market, which dominates the regional market, currently has a total stock of approximately 2,490,000 sq m1. Activity has increased due to growing requirements for office space from larger corporates and professional firms. It should be noted however that a number of these requirements are from local occupiers considering relocation elsewhere in the city who may ultimately choose to remain in-situ. 2.13 The completion of the three new speculative office developments – at 110 Queen Street, 1 West Regent Street and St Vincent Plaza – has made available Grade A office space with large, modern floorplates. This has proved attractive to occupiers, with eight lettings were completed between September 2015 and January 2016. As highlighted in the most recent Ryden (78th) 1 According to CoStar 6 Scottish Property Review (May 2016), this has contributed to strong take-up over the preceding six months, producing a 12 month total of 67,902 sq.m. 2.14 This surge would normally create the stimulus for those developers with planning consent to trigger the next cycle of speculative new build development. However, concerns over the availability of institutional funding is delaying the next phase and major new development completions are now likely to be pushed out to 2019. 2.15 However, this increased letting activity has not yet stimulated the next cycle of speculative new build development. Concerns over the availability of institutional funding is delaying the next phase with no major new development completions expected until 2019. There one new office development currently on-site in Glasgow city centre, HF Developments 33,000 sq m Bothwell Exchange, is the subject of a pre-let to Morgan Stanley. HFD also has consent for a further 19,974 sq.m. of speculative development on their adjoining 177 Bothwell Street site. In addition, plans have recently been submitted for a further two office schemes on Waterloo Street - Patrizia’s Keppie-designed 8,000 sq m office block on the corner of Waterloo and Douglas Street, and the proposed redevelopment of the former Distiller’s House development creating 10,000 sq m of office space behind a retained façade. Occupier demand in Glasgow has tended to be from indigenous firms driven by an average 18 lease expiries per year rather than inward investment. 2.16 Prime headline rents are now at £306-£323 per sq m for new space, with rents for high quality refurbished space achieving £247-£280 per sq m. For Grade A office space, incentive levels remain very competitive as developers seek to secure the best occupier lettings. 2.17 With the lack of new supply coming to the market, available Grade A space will be put under pressure reducing occupier choice. It does provide an opportunity, however, for the refurbishment market and as a result, a number of refurbishments are now underway. These include: 7 EPIC UK at 9 George Square (up to 4,900 sq.m. in two phases); Aviva at 123 St Vincent Street (4,180 sq.m.) The Beacon, St Vincent Street (2,297 sq.m.) Esson Properties at 100 Queen Street (4,945 sq.m.); 2.18 While the refurbishment completions will add to availability, this is countered by recent large scale letting activity. Total supply remains relatively static at 350,026 sq m with 218,030 sq m (62%) in the city centre and the periphery offering 131,996 sq m (38%).

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