Demand for business space was hit hard following the credit crunch as companies battened down the hatches and banks reined in lending for new developments. The office markets in Scotland’s two biggest cities – Edinburgh and Glasgow – were particularly badly affected.
But recent months have seen signs of life return to the sector and agents now believe that it may have turned a corner.
Provisional data from property consultancy Jones Lang LaSalle (JLL) suggests that there will have been a 30 per cent increase in office space take-up – lettings and sales – during 2013, compared to a year earlier.
Total take-up across Britain’s “big six” regional markets, also including Birmingham, Bristol, Leeds and Manchester, is forecast to have topped 4.1 million square feet. The figure is the highest for six years and 20 per cent above the annual five-year average for the big six markets.
While there is no specific breakdown for the two big Scottish markets, experts said Edinburgh was poised to see the strongest occupier take-up figure since 2007, when it totalled 826,600sq ft.
They also pointed to a lack of office space at the top end of the market, with the Scottish capital having a new-build “Grade A” vacancy rate of just 0.9 per cent. It follows warnings in the past year that the city’s growth was being threatened by a lack of major office developments coming on to the market in the wake of the recession.
Jeremy Richards, lead director of JLL’s regional office agency team, said: “We have undoubtedly witnessed a revival in the fortunes of the key office markets outside London this year. Total take-up levels across the ‘Big Six’ is on track to be the highest since 2007.
“This momentum is expected to continue into 2014. Our research shows that there is over 2.7 million square feet of active requirements across the Big Six.”
He added: “Whilst some occupiers may seek to preserve flexibility by re-gearing on shorter leases, improved business confidence will encourage other occupiers to acquire new Grade A accommodation and we expect an increase in pre-letting activity.”
A lack of supply is also expected to push up prime rents, with average growth across the big six locations of 2.4 per cent in 2014. Glasgow could see increases of more than 3.5 per cent, JLL noted.
Angus Minford, director in JLL’s national office investment team, said: “2013 has been a year of marked yield improvement in the city centre office markets across the key UK centres. Price pressure in the capital [London] is encouraging some investors to look to the Big Six in search of better returns.
“This includes the traditional investors in these markets, both UK and European, but also a growing trend of interest from global investors either directly or indirectly.”
In October, a report by property consultancy peer Ryden revealed that investors were shrugging off the possibility of Scotland gaining independence as they shunned an “overpriced” London market to target office schemes, industrial estates and retail parks north of the Border.
However, industry experts believe that demand may cool in the immediate run-up to September’s referendum.