Bleak times for office market in capital

Published on Monday 2 November 2009 18:02

AN IMPROVING residential market is often reckoned to be the presage of the commercial property summer. So good news for the residential market has to be good news for commercial property.

Savills Scotland says the residential market in Scotland is now in stark contrast to the gloom of this time last year.

According to Jamie Macnab, head of residential in Edinburgh: "We are seeing a very positive change in buyer sentiment with high demand for prime property throughout the summer, gaining momentum this autumn.

"We have increased the number of deals agreed in September, compared to August, by more than 200 per cent.

"A shortage of stock is emerging in some price bands, though there are welcome signs that an increase in activity should bring more sellers to the market."

DTZ says that as an indicator of marginal improvement in public confidence in the economy, house prices have at last turned the corner and are showing signs of slight, albeit fragile, recovery. Interest rates remain low and business receiverships has not ballooned as some experts feared.

So, asks Mark Jones, Edinburgh-based director with DTZ, does that mean that all is looking rosy in the office market garden?

Far from it, and he has compiled a downbeat resum of the Edinburgh office market, which indicates it is as bad as it can get, with occupiers now in a strong position to extract the best of terms from landlords desperate for them to sign up. Jones states: "Take-up levels declined in the third quarter and within most sectors redundancies continue, leading to ever-increasing levels of under-utilisation of office space. This will have an impact on future take-up as the economy recovers, and as companies adjust, we expect to see a release of second-hand space into the market on competitive terms.

"In the city, third-quarter take-up stood at 78,700sq ft in only 21 transactions. This takes the year-to-date take-up to around 300,000sq ft. Take-up remains focussed on smaller transactions (sub-5,000sq ft), supplemented by a small number of more high-profile lettings. Deals over 10,000sq ft remain scarce and we appear to be in line for no more than 12-15 transactions above this size for the whole of 2009."

He says that there were no Grade A transactions in the third quarter and it appears the trend to upgrade quality has now largely ceased for smaller occupiers. For occupiers with lease breaks, landlords are proactively incentivising these away to provide continuity of income.

Jones goes on: "Market incentives swung significantly in the tenant's favour during the latter half of 2008 and first part of 2009. As demand levels remained at subdued levels, a number of landlords and tenants holding vacant space are beginning to revise quoting rents with the aim of generating interest. This is most noticeable within the non-new Grade A market.

"Such as: The Walk – up to 15,000sq ft available on a single floor. Quoting rents have been reduced to 19.50 per sq ft from 23.00 per sq ft; 40 Princes Street – rents have steadily fallen from 27.00 per sq ft to 23.00 per sq ft for unoccupied Grade A space."

He says others will follow suit, with DTZ predicting that prime city centre rents or Grade A space will drop to around 25.50.

DTZ is now undertaking detailed research to provide answers beyond gut reaction to three questions: Will rents for new prime stock fall? When should the next round of speculative development be initiated? And is Edinburgh/ Scotland competing effectively for new occupiers?

Trust takes up lease on Hermiston Quay

THE National Trust for Scotland, having sold its HQ in Charlotte Square, Edinburgh, for 11 million, has completed its second cash-saving move by signing a deal to lease all 30,411sq ft of the Henderson Global Investors building at Hermiston Quay, Edinburgh. The lease is for 25 years for a building which has been empty since the Miller Group built it in 2001 before selling it on. Rent not disclosed, but the Trust says that the financial deal will allow it to make considerable savings over the coming years.

Agents for Henderson were Eric Young & Co, Ryden for the National Trust. Solicitors were MacLay Murray & Spens for Henderson, Anderson Strathearn for the National Trust.

TWO deals for the Edinburgh-based Premier Property Group (PPG) in its development at 141 Bath Street, Glasgow, make it a full house only five months after completion. Shell Shared Services, re-locating from Gordon Street, is taking 61,000sq ft, and BNP Paribas Securities Services, already with space in the nearby Aurora building, has signed up for 17,563sq ft.

DTZ acted as development consultants and leasing advisors to PPG; Phil Reid Associates was joint leasing agent on Shell and BNP Paribas; Shell was represented by DTZ; BNP Paribas by BNP Paribas Real Estate.

PROPERTY agent Lambert Smith Hampton has moved from 101 George Street, Edinburgh, to number 91 five doors along, with Knight Frank acting for the landlord, Quantum People. It has taken 1,136sq ft on the second floor on a five-year lease at 18.70 per sq ft plus incentives.

GLASGOW-BASED City Sites Estates has secured two significant new retail lettings at its Mercat Shopping Centre in Kirkcaldy, with Home Bargains and Peacocks having to occupy the vacant Woolworths unit. Branded discount retailer Home Bargains is taking a 9,500sq ft unit on a 15-year lease at 125,000 a year and value fashion retailer Peacocks a 9,700sq ft unit on a 10-year lease also at 125,000.

BNP Paribas Real Estate and Cushman and Wakefield acted for City Sites Estates, Reith Lambert and Bennett Real Estate Consultancy for Home Bargains and J H Campbell Property Consultants for Peacocks.

A DULUX Decorator Centre is to be established at West Craigs Industrial Estate, Turnhouse Road in west Edinburgh. A 3,572sq ft unit has been leased for six years from John Bryce Warehousing at an undisclosed rent.

King Sturge advised Dulux, with John Bryce (Warehousing) represented by Ryden.

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