World Research UK Commercial

Market Watch Scottish Office Market February 2017

Despite a year of uncertainty, the Scottish office GRAPH 1 market remains buoyant. Leasing take-up by city

Aberdeen Edinburgh Annual Average 3,500,000 Occupational 35,000 sq ft of available space at The Scottish office markets finished Kintore House, Edinburgh, was 3,000,000

2016 strongly, with wider take up purchased by Gloag Investments 2,500,000 reaching 694,849 sq ft for the final to convert to hotels during the final 2,000,000 quarter, 9% above the quarterly quarter, which has left the city centre Sq ft average of 640,352 sq ft. with less than two years of supply 1,500,000 remaining. 1,000,000

On an annual basis, the Scottish 500,000 markets saw a total of 2,370,497 sq There remains a shortage of Grade - ft taken during 2016, 2% below the A space in both Glasgow and 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 level recorded during 2015, but 10% Edinburgh, which has ultimately above the long term average (Graph brought rent free periods back in to 9 Source: Savills Research 1). Given the political uncertainty months and 12 months on a five year GRAPH 2 faced throughout the year, the lease respectively. 2016 take up by business sector Scottish market has held firm. At end 2016, top rents remain at Banking TMT 7% Business & Public services, education and health £33.50 per sq ft in Edinburgh, £30 per 17% consumer services 8% was the most active business sector sq ft in Glasgow and £32 per sq ft in Engineering during 2016 (Graph 2). However, the Aberdeen. 5% TMT sector had another strong year, Extraction & Utilities and was the most active business Investment 3% sector for deals below 10,000 sq ft. Despite political uncertainty regarding Public services, education & health Insurance & 21% the UK's relationship with the EU, Financial Services This was largely down to the office investment in Aberdeen, 13% University of the West of Scotland Edinburgh and Glasgow reached Property Company, Manufacturing & who took a 225,000 sq ft pre-let at £565m during 2016, which marks Development & Industry Professional Other 3% the EcoCampus, Hamilton during the a 9.5% fall on the 10 year average 8% 4% 11% final quarter, whilst Napier University (Graph 4). Source: Savills Research took 107,514 sq ft at South Gyle Business Park, Edinburgh during the Prime yields held steady during the GRAPH 3 first quarter. This boosted 2016's final quarter of 2016, with Glasgow Availability by city out of town take up above the level and Edinburgh both standing at recorded during 2015. 5.5%, with Aberdeen at 7.25%. Aberdeen Edinburgh Glasgow 7,000,000

Despite falling slightly in both Savills latest research illustrates lower 6,000,000 Edinburgh and Glasgow between volatility in returns for the Scottish 5,000,000 end 2015 and end 2016, total office market, compared to the rest of availability in Scotland increased by the UK (Graph 5). With returns set to 4,000,000 19% (Graph 3). This was down to be income driven going forward and 3,000,000

Aberdeen's availability increasing yields remaining attractive relative to ft) (sq Availability 2,000,000 51% to 2.65 million sq ft over the the rest of the UK, we see this as an course of 2016. opportunity for the Scottish markets 1,000,000 to outperform during 2017. n - 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: Savills Research

savills.co.uk/research 01 Market Watch | Scottish Office Market

GRAPH 4 GRAPH 5 Office investment by city Office returns volatility by region

4.3 Aberdeen Edinburgh Glasgow Average Mid Town 1,200 West End 4.0 City 1,000 3.8 Inner 800 3.5

600 £m 3.3

Scotland 400 3.0 Standard Deviation Standard

200 2.8

0 2.5 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1.0 1.5 2.0 2.5 3.0 Average Quarterly Total Return (%)

Source: Savills Research, Property Data Source: Savills Research, MSCI

TABLE 1 Significant Leasing Deals in Q4 2016

Address City Sq ft Grade Business Sector Tenant

Public Services, Education University of the West Hamilton, Eco Campus Glasgow 225,000 A & Health of Scotland

Maxim 7, Eurocentral Glasgow 43,568 A Engineering Balfour Beatty

Public Services, Education 76-78 Lauriston Place Edinburgh 34,130 B University of Edinburgh & Health

Savills Scotland Office Agency & Investment Please contact us for further information

Nick Penny David Cobban Keith Dobson Simpson Buglass Dan Smith Mike Barnes Head of Scotland Glasgow Agency Edinburgh Agency Aberdeen Agency Aberdeen Agency Research 0131 247 3803 0141 222 4101 0131 247 3801 01224 971 133 01224 971 134 020 3107 5459 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

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