78
th
Scottish
Property
Review
APR/16
SCOTTISH PROPERTY REVIEW APR/16
Marischal Square, Aberdeen
SCOTTISH PROPERTY REVIEW APR/16
Scottish economic growth 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.
Office markets continue to move in very different cycles.
Glasgow offices are achieving strong Grade A 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.
Industrial property markets are active but are digesting
the loss of vacant rates relief.
The retail sector is active and focused on re-energising,
expanding and diversifying existing prime locations.
The property investment market has been selectively
active, but is now slowing, with the prospect of a post-EU
Referendum rebound for strong regional markets such
as Glasgow and Edinburgh.
DR MARK ROBERTSON, PARTNER
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SCOTTISH PROPERTY REVIEW APR/16
Economy
The Scottish economy continued to grow during 2015,
however the estimate for Q3 2015 was revised down by
Scotland’s chief statistician from +0.1% to -0.1%. This ended
a sequence of 11 straight quarters of growth in Scotland
and prevented a three-year unbroken run.
Scottish GDP grew by 0.9% on an annual basis (from Q4
2014 to Q4 2015), and by 0.2% during the fourth quarter
of 2015. Output during Q4 2015 increased modestly in
both the construction sector (0.1%) and in the dominant
services sector (0.3%), but contracted in the production
sector (-0.1%).
The most recent Bank of Scotland Purchasing Managers’
Index (PMI March 2016 = 48.5) indicates a deterioration
in business conditions in Scotland’s private sector. A fall
from 49.2 in 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.
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 unemployment
claimant count was 2.5% in February 2016.
According to the Committee of Scottish Clearing Bankers,
the number of new business accounts opened during
2015 was down by a marginal 1% on 2014, at 11,669.
The largest share of new businesses (29%) was in the
real estate, renting and other business sector.
The Insolvency Service reports a total of 260 company
insolvencies in Scotland in the fourth quarter of 2015,
which is up by 20.4% compared with the same period
of 2014. During 2015 as a whole however, company
insolvencies were 1.1% lower than 2014.
According to the Scottish Government’s Retail Sales Index,
sales grew by 0.6% during the fourth quarter of 2015, and
by 2.2% on an annual basis. Retail sales in Great Britain
recorded higher annual growth of 3.7% for 2015.
2
The Scottish Retail Consortium reports that retail sales
fell by 1.3% year-on-year to March 2016, a faster fall than
the 0.7% reported in February.
According to the Department for Energy and Climate
Change, indigenous production of crude oil increased
by 16.6% in the fourth quarter of 2015 compared with
the same period of 2014. However, oil prices continue
to hover at around $40 to $45 per barrel, compared with
their recent peak at $118 in 2013.
Consensus forecasts for UK Economic Growth published
by HM Treasury in March 2015 predict growth of 2.0%
in 2016 and 2.2% for 2017. The EY ITEM Club predicts
growth of 2.6% during 2016 and the International
Monetary Fund’s forecast for the UK in 2016 is growth
of 2.2%.
For Scotland, Fraser of Allander Institute’s central forecast
– published in March 2016 – is for 1.9% in 2016 and 2.2%
in 2017. 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 with the weak second half of 2015 and
poor lead indicators for early 2016.
In summary, the performance of the Scottish economy
deteriorated markedly during the second half of 2015
and early 2016. It is likely – and is observable in the
property market – that a significant proportion of this
is due to disinvestment by the offshore industry in
response to the continuing weak oil price, which affects
not just the North-East of Scotland but also the industrial
and service supply chain across the country. The extent
of the slowdown suggests however that other factors,
potentially including the May 2016 Holyrood Elections
and the June 2016 EU Referendum, are also weighing
on economic performance.
SCOTTISH PROPERTY REVIEW APR/16
Job gains:
Televerde plans up to 170 call centre jobs at its new European headquarters in Glasgow over the next two years.
In the Scottish Borders, IT services firm CGI plans to open a new centre of excellence creating 200 new positions.
Hotel group Premier Inn is creating 150 new jobs in Edinburgh with three new hotels located in the Old Town,
on New Market Street and on York Place.
In Stirling, plastics packaging firm Nampak Plastics Europe plans to create 20 new jobs at Springkerse Industrial
Estate.
Discount retailer Poundworld plans to open 10 new stores in Scotland within the next six months, creating
300 new jobs.
An expansion of pharmaceutical firm GlaxoSmithKline’s penicillin production plant in Irvine is expected to create
55 new positions.
Job losses:
Recent announcements in the oil and gas industry include: engineering services group EnerMech to shed 90 North
Sea jobs; subsea firm Aker Solutions announced 280 job losses in its Aberdeen and London offices; oil and gas
operator EnQuest to cut 45 jobs in Aberdeen; BP plans to cut around 600 of its North Sea positions; and oil
and gas firm TAQA Bratani with 100 North Sea job losses.
Johnson Matthey Battery Systems is moving its operations from Dundee to Milton Keynes; the factory closure
will lead to the loss of 60 positions.
Fashion clothing retail Forever 21 is closing its flagship store on Buchanan Street, Glasgow with the loss of 75 jobs.
Over 100 positions will be lost with the closure of the Polaroid Eyewear plant in Vale of Leven, which is expected
to happen by Spring 2017.
German dairy firm Müller plans to close its dairy processing plants in Aberdeen and East Kilbride with the loss
of 229 jobs.
Marine Harvest will shed 80 positions at its fish farms and offices in Scotland, including 44 at its site in Lochaber.
In Kilmarnock, MAHLE Group, a supplier to the automotive industry, made 170 workers redundant with the closure
of its finishing unit at the site.
Swiss-based Franke Group is undertaking a phased closure over the next 18 – 20 months of the Carron Phoenix sink
manufacturing plant in Falkirk which will result in the loss of around 200 jobs.
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SCOTTISH PROPERTY REVIEW APR/16
Planning
Draft Planning Delivery Advice:
Housing and Infrastructure
The Scottish Government launched its draft Planning
Delivery Advice: Housing and Infrastructure on 17 February
2016. It was subject to a six week consultation period,
which closed on 31 March 2016.
The draft advice follows Ryden’s Planning for Infrastructure
Research Report and is concerned with improving housing
and infrastructure delivery, primarily through the
development plan process, but will also be a material
consideration in the determination of planning
applications and appeals.
Many recommendations set out in Planning for
Infrastructure are picked up by this draft advice. Early
and better information on infrastructure capacity and
more consistent cross-agency working will be key to
overcoming infrastructure constraints that can hold
up the delivery of development.
A move to satisfy these concerns and a more concerted
effort to drive the delivery of infrastructure to enable
the significant levels of new housing required across
the country should be the priority for the Government’s
finalised advice.
Planning consequences of changes
to vacant rates relief
Changes introduced by the Scottish Government on 1 April
2016 significantly reduced the amount of rates relief on
empty industrial and commercial property. Prior to April,
vacant industrial property received 100% rates relief. This
now only applies for the first six months, reducing to just
10% thereafter. Other commercial property previously
obtained 100% relief for the first three months but that
has now been reduced to 50% for the first three months,
dropping to 10% thereafter.
With such severe financial implications for property
owners and the development industry, a number of
un-intended consequences have begun to emerge.
Speculative office and industrial development, which had
only recently started to increase following the recession,
is again under scrutiny. Understandably, developers are
reluctant to commit, particularly in areas where markets
are struggling, if there is little prospect of a pre-let prior
to completion. Many are simply not prepared to take the
risk of a recently completed property being left vacant.
Older industrial and office properties which have become
vacant and fall short of current standards and occupier
expectations are being considered for demolition and in
4
some cases redevelopment for alternative uses. In some
instances this is welcomed by planning authorities as a
catalyst for regeneration. However, in others it can create
conflict with development plan policies, particularly
where non-conforming alternative uses are proposed.
Unfortunately, Development Plans, given the time they
take to prepare, are not geared to react to such changes
and the consequence is likely to be ‘planning by appeal’.
Planning performance statistics
The Scottish Government has published its Planning
Performance Statistics for October to December 2015
(Quarter 3). A total of 7,024 planning applications were
decided in that period, which is down by 7% from Quarter
2 and by 4% from the same period the previous year.
94% of these applications were approved.
The average time taken to determine local housing
applications was 13.6 weeks, roughly the same as the
previous quarter and the same period last year. Only
56% of local housing applications were determined in
two months. This means that approximately 44% of
local applications are still taking more than the required
eight weeks to determine. Local business and industry
applications are determined more quickly, on average
taking only 9.8 weeks. 69% are determined within the
required 8 weeks, which is down slightly from the
previous quarter.
All major developments are taking, on average, 32.7 weeks
to determine, which is slower than Quarter 2, but faster
than the same quarter last year. Major housing
developments, on average, take longer to determine
at 35.3 weeks, with major business and industry
developments taking the longest, on average, being
determined in 39 weeks. This does not include the
12 week pre-application period where information
requirements are discussed, prepared and submitted
up front, before the clock starts ticking.
While the majority of these applications are being
approved, planning applications are still taking far too
long to be determined. It is worrying that the time taken
to make a decision on major applications is more than
double the statutory timeframe of 13 weeks. This is
impacting negatively on the development industry and
could ultimately affect the viability of major projects
at a time when the industry needs support the most.
It is accepted that some applications will be complex,
requiring additional time to ensure the right outcome,
but the development management process needs to
be streamlined, with additional resources required to
ensure applications are decided timeously to encourage
continued economic investment.
SCOTTISH PROPERTY REVIEW APR/16
Offices
Scotland’s office market cycles continue to diverge.
Aberdeen faces a multi-year market adjustment while
Edinburgh and Glasgow are experiencing strong occupier
demand and limited new-build development activity.
Glasgow experienced a flurry of deal completions
between September 2015 and January 2016. There were
eight lettings in the major new build developments at
St Vincent Plaza, 110 Queen Street and 1 West Regent
Street. Allied to a range of lettings across the wider
market, this produced a strong turn of the year with
take-up over the last six months at 39,254 sq.m. resulting
in a 12 month total of 67,902 sq.m. This excludes ACCA’s
(Association of Chartered Certified Accountants) taking
5,179 sq.m. at 110 Queen Street, which concluded after
our statistics cut-off date and HFD Group’s pre-let of
14,739 sq.m. to Morgan Stanley at 122 Waterloo Street.
HFD also has consent for a further 19,974 sq.m. of
speculative development on their adjoining 177 Bothwell
Street site. A sample of deals is contained in the table on
page 6. Further letting activity is anticipated within the
existing new build developments and higher quality
refurbishments.
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.
As such, occupiers’ choice of offices in Glasgow will
continue to erode. For larger occupiers there are only
six new or high quality refurbished buildings that can
provide over 1,858 sq.m. with floors over 1,394 sq.m.,
and only four buildings that can provide a self-contained
option over 1,858 sq.m.
This hiatus in new development presents an opportunity
for the refurbishment market, which various landlords
and developers are now targeting. Examples are: 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.) and at The
Beacon, St Vincent Street (2,297 sq.m.); Esson Properties
at 100 Queen Street (4,945 sq.m.); Whiteburn Projects
at 100 West George Street (2,400 sq.m.); Queenside at
65 West Regent Street (3,130 sq.m.); USS at Atrium Court,
Waterloo Street (3,275 sq.m.); LIS at Tay House, Bath
Street (4,530 sq.m.); and Cornerstone at 220 St Vincent
Street (1,410 sq.m.).
An interesting barometer of the current climate and
developer appetite in the speculative refurbishment
market will be the outcome of opportunities currently
being offered for sale at Dalmore House, 310 St Vincent
Street (6,545 sq.m.) and 50 Bothwell Street (office
element 7,246 sq.m.), by Praxis and M&G respectively.
While the refurbishment completions noted 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%).
On the periphery, there continues to be reasonable
activity across a range of properties and sizes. Clyde
Gateway secured notable success at the recently
completed low carbon One Rutherglen Links, where SPIE
Matthew Hall has taken 1,654 sq.m. and at The Albus,
Bridgeton where Peebles Media Group has taken 606
sq.m. Teekay Shipping expanded into a further 583 sq.m.
at 144 Elliot Street. Systal has taken 650 sq.m. at Nova
Business Park, Robroyston. The Hub, Pacific Quay,
continues to attract occupiers with a mix of new lettings
to Spaarks and Green Bird Media and expansion for
SwarmOnline and Digirati. At Skypark, Lockheed Martin
has taken an additional 490 sq.m. and new occupier
Stream Technologies has taken 315 sq.m.
The out-of-town market has also recorded activity with
Buchanan Park attracting Mortgage Force, Solutions
Driven and Doka; Spectrum Service Solutions at
Westpoint Business Park, Glasgow Airport (436 sq.m.);
KONE at Glasgow Business Park (357 sq.m.); Braid
Logistics at Riverside, Braehead (562 sq.m.); Schenker
Limited at The Arc, Hillington (225 sq.m.); and at
Strathclyde Business Park Securitas and Genpact have
taken 427 sq.m. and 325 sq.m. at Bothwell House and
Willow House respectively.
Prime headline office rents in Glasgow are £306-£323 per
sq.m. Despite reducing occupier choice at the Grade A
end of the market, incentive levels remain very competitive
as developers seek to secure the best occupier lettings.
There is a wide range of quality and therefore rental for
refurbished office space. There are options available for
good space from £178 per sq.m., rising to £247-£280 per
sq.m. for high quality space or potentially more for the
best upper floors.
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SCOTTISH PROPERTY REVIEW APR/16
Glasgow office supply and take-up
Supply
CodeBase at Argyle House (totalling 7,319 sq.m. of new
lettings); Cirrus Logic at Quartermile 4 (6,507 sq.m.);
Baxters, Institute of Directors and Lomond Capital at
the Charlotte Collection (totalling 1,825 sq.m.); Amazon
expanding at Waverley Gate (1,257 sq.m. of new space);
Chiltern’s expansion at The Stamp Office, Waterloo Place
(678 sq.m.); St James’s Place Unit Trust at The Cube (603
sq.m.); and Nikko Asset Management at Edinburgh Quay 2
(280 sq.m.).
Take–up
400,000
350,000
sq.m.
300,000
250,000
200,000
150,000
100,000
50,000
0
MAR-12
MAR-13
MAR-14
MAR-15
MAR-16
Edinburgh’s office market achieved 63,220 sq.m.
of take-up during the six months to March 2016.
This represents a 50% increase in the activity from
the previous six month period. Total take-up for the
12 months to March 2016 is 105,260 sq.m., which is
the highest on record since 2000 (a boom period
when financial services, the dot.com sector and fresh
devolution were all driving the city’s office market).
Within the city centre, office take-up totalled 36,550 sq.m.
across 74 deals, representing 58% of the total take-up,
which is down on the previous six month period. Grade A
and good quality accommodation accounted for 11,981
sq.m. or 33% of city centre office take-up.
Edinburgh city centre take-up was led by notable lettings
including: University of Edinburgh, CodeClan and
City centre activity also included sales of office buildings for
alternative uses. Notable examples include: 1-2 St Andrew
Square (1,300 sq.m.) for commercial development; and
Ryden’s former offices at 42/46 Castle Street (1,000 sq.m.),
29 Drumsheugh Gardens (595 sq.m.) as well as 10 Bell’s
Brae (1,660 sq.m.) and 6/7 Drumsheugh Gardens (1,207
sq.m.) for conversion to residential use.
Take-up in the peripheral office markets in Edinburgh
saw a total of 26,670 sq.m. transacted across 32 deals.
Notably West Edinburgh attracted a total of 12,835 sq.m.
of occupational activity transacted across nine deals,
which is a marked increase in floorspace activity from
the previous six month period, albeit this is largely led by
the sale of The Stones, South Gyle to Edinburgh Napier
University (9,940 sq.m).
In addition to the sale of The Stones, there have been
other notable transactions recorded in west Edinburgh,
including the completion to HSBC at Lochside Avenue
(3,716 sq.m.); Origo Services at 7 Lochside View (1,019
sq.m.); and the acquisition of 3 Lochside View and
4/5 Lochside View by J.P. Morgan (7,854 sq.m.).
Larger office deals in Glasgow over the last six months include:
Address
Size
Occupier
122 Waterloo Street
14,739 sq.m.
Morgan Stanley (Pre-Let –
development completion end 2017)
St Vincent Plaza, St Vincent Street
3,689 sq.m.
KPMG
1,605 sq.m.
Whyte & Mackay
1,607 sq.m.
Registers of Scotland
1,943 sq.m.
CMS
1,273 sq.m.
Shepherd and Wedderburn
1,272 sq.m.
FDM Group
110 Queen Street
1,705 sq.m.
DWF
Granite House, Stockwell Street
1,812 sq.m.
Clydesdale Bank
Pacific House, 70 Wellington Street
1,128 sq.m.
Big Lottery Fund
67 Hope Street
1,759 sq.m.
Pure Gym
One Rutherglen Links
1,654 sq.m.
SPIE Matthew Hall
Nova Business Park
651 sq.m.
Systal
The Albus Building, Bridgeton
606 sq.m.
Peebles Media Group
1 West Regent Street
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SCOTTISH PROPERTY REVIEW APR/16
APR/15
Edinburgh office supply and take-up
Supply
The continued lack of immediate Grade A supply in
Edinburgh city centre is evident, and with a number
of requirements circulating across the city, remaining
Grade A space could be further reduced over the next
few months and, crucially, before the next wave of
developments is available for occupation.
Take–up
300,000
250,000
sq.m.
200,000
150,000
100,000
50,000
0
MAR-12
MAR-13
MAR-14
MAR-15
MAR-16
These transactions have resulted in pressure on the
supply of good quality, modern office accommodation
within The Gyle and Edinburgh Park area, and with a lack
of proposed development in the vicinity any sizeable
occupier requirement may have to consider other
business park locations.
In North Edinburgh, some notable transactions include
lettings to INOVA Geophysical and Royal HaskoningDHV
at Commercial Quay (total 579 sq.m.) and sales at 112
Commercial Street to Mearns & Company (668 sq.m.)
and 25 Bernard Street/25 Maritime Street to the Rokpa
Trust (401 sq.m.).
Prime office rents in central Edinburgh remain around
£300 per sq.m., although pre-letting activity is still
continuing at rents slightly above this level. Incentives
remain around 18-24 months rent free for a 10-year lease
commitment to the highest quality occupier covenants.
Significant rental growth has yet to materialise in this
market cycle, however pre-letting activity should see
rents rise above £323 per sq.m. and incentives could
potentially face downward pressure given the tightening
supply of space.
Following the successful pre-letting of Quartermile 4,
M&G Real Estate has commenced on site with
Quartermile 3 which will comprise 6,781 sq.m. and
has an anticipated completion date of Q4 2017. At Tiger
Developments/Interserve’s The Haymarket, the majority
of the underground works have now completed, allowing
Phase 1 of this mixed use development to commence,
providing 8,825 sq.m. of office accommodation with
a number of pre-letting retail options having been
secured within the ground floor. It is possible that
the development partners may also commence with
Haymarket 1, which would provide 16,113 sq.m. of
office accommodation.
The next phase of the development cycle for potential
completion in 2018 includes the speculative development
of 4,180 sq.m. of Grade A offices on Semple Street by
GSS Developments; Hermes Investment Management
and Parlison Properties’ 11,334 sq.m. of Grade A offices
in The Exchange; and Chris Stewart Group commencing
with 5,574 sq.m. at The Mint Building, 42 St Andrews
Square.
Other design-and-build opportunities include: New
Waverley by Artisan Real Estate Investment (15,793
sq.m.); Fountain Quay’s potential joint venture with the
City of Edinburgh Council (12,541 sq.m.); Dewar Place by
SP Energy Networks and C220 (13,935 sq.m.); and Freer
Street by Amco Developments Group (13,000 sq.m.)
as well as a number of refurbishment options situated
on George Street and surrounding locations.
Total office supply across Edinburgh at March 2016
is 184,840 sq.m., a further decrease of 5% since
October 2015.
Larger office deals in Edinburgh over the last six months include:
Address
Size
Occupier
Quartermile 4
6,507 sq.m.
Cirrus Logic
Waverley Gate
1,257 sq.m.
Amazon
The Stones at South Gyle
9,940 sq.m.
Edinburgh Napier University
Lochside Avenue, Edinburgh Park
3,716 sq.m.
HSBC
7 Lochside View, Edinburgh Park
1,019 sq.m.
Origo Services
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SCOTTISH PROPERTY REVIEW APR/16
Turbulent times have continued in Aberdeen over the
past six months and the office market has suffered
accordingly. Within this period Brent Crude Oil dropped
to below $28 per barrel which was its lowest level since
2003. At the time of writing it is trading above $40 per
barrel which, although a step in the right direction, is still
at an unsustainable level resulting in a lack of activity
throughout the sector.
Muse’s Marischal Square and Titan’s Silver Fin speculative
office developments in the city centre, both of which are
on target for completion during Q2 2017.
The recent Budget incorporated a number of oil & gas
measures which included a rate cut of the supplementary
charge from 20% to 10% and the effective abolition of the
petroleum revenue tax. Although welcome, these changes
fell short of industry expectations. For several years the
industry has been lobbying for a lower tax burden to
recognise the higher cost base and the maturity of the
North Sea oil & gas basin.
Aberdeen office supply and take-up
Office supply has increased by a whopping 37% to
222,910 sq.m. in 204 properties, including schemes which
are currently under construction. Of this around 121,000
sq.m. is considered to be Grade A stock with 34,220 sq.m.
under construction. Approximately 25% of this comprises
older stock of poorer quality.
Take-up in the sector has fallen by 71% to 7,725 sq.m.
over the past six months, resulting in an annual take-up
of 33,885 sq.m. which is well below the 10-year average
of 70,820 sq.m. The number of transactions was down by
11% to 40 but more significantly, the largest transaction
was only 980 sq.m. Approximately 50% of the take-up
was of Grade A accommodation.
In the city centre, AB1 on Huntly Street continues to fill
up with two further lettings to the Department for Energy
& Climate Change (725 sq.m.) and Crown Office and
Procurator Fiscal Services (980 sq.m.), meaning that the
building is now two-thirds let. Knight Property Group’s
speculative 6,770 sq.m. Capitol scheme has just been
completed and the top floor (933 sq.m.) has been let to
PwC (after our statistics cut off date). Work continues on
Supply
Take–up
250,000
200,000
sq.m.
Although there is still a huge oversupply of oil, general
sentiment appears to be that as a result of current
inactivity this will change towards the end of the year
and the price should start to rise. That said, respected
commentators have been proven wrong on many
occasions since this downturn commenced in 2014 and
the property market balance described below would
suggest that a multi-year adjustment can be anticipated.
There has been a lack of activity in Aberdeen’s peripheral
locations where there is currently 15,400 sq.m. of
new-build office stock sitting vacant.
150,000
100,000
50,000
0
MAR-12
MAR-13
MAR-14
MAR-15
In general, the market has turned full circle and there
is now a large amount of Grade A stock available facing
limited take-up. The office market in recent years has
been restricted by a lack of stock, which is clearly
no longer the case. This will undoubtedly open up
opportunities for tenants as and when the offshore
industry rebounds. Market rents have been under
pressure, however the dearth of deals precludes
meaningful rental analysis at this time. Incentives have
inevitably increased, meaning that tenants fortunate
enough to find themselves with lease events are starting
to capitalise on this and are considering moves on
favourable terms. Many currently find themselves in
secondary stock which is largely unsuitable, however
the dynamics of the market have changed and it seems
likely that occupiers will start taking advantage of this
by relocating to better stock. This in turn may create
an interesting regeneration challenge/opportunity for
Aberdeen as older buildings fall out of the office market.
One of the unique characteristics of the Aberdeen
market (and the energy industry that drives it) is that it
is generally out of “sync” with the remainder of the UK
market and that it can change very quickly. While it may
Larger office deals in Aberdeen over the last six months include:
Address
Size
Occupier
AB1, Huntly Street
980 sq.m.
Crown Office and Procurator
Fiscal Services
AB1, Huntly Street
725 sq.m.
Department for Energy
& Climate Change
Balmoral Business Park
621 sq.m.
North Sea Midstream Partners
8
MAR-16
SCOTTISH PROPERTY REVIEW APR/16
be “oversupplied” at present, experience would suggest
the supply of new Grade A space currently under
construction should be viewed as a welcome addition
which the city will need to maintain its leading position
as an energy hub in the future.
According to recent figures, Dundee saw the biggest rise
in the number of new companies registered in Scotland
last year and this has been reflected in take-up over the
last six months. Demand for offices continues to be mainly
from smaller requirements up to 139 sq.m., with the
majority of serviced offices now fully occupied. Office
rents in Dundee remain at £161 per sq.m.
Recent transactions in Dundee include lettings to
Capability Scotland at Unit 10 City Quay (377 sq.m.)
and Kobojo Ltd within Suite 13 of The Vision Building
(527 sq.m.) from P4 Property Holdings on a 10 year lease.
Priority Care Group Ltd purchased office space at
23 Roseangle (325 sq.m.) and The Inclusion Group
purchased an office from Home in Scotland Ltd at
27 Albert Square (424 sq.m.).
Prime city office rents 2016 (£ per sq.m.)
Aberdeen
345
Glasgow
323
Edinburgh
300
Dundee
161
With the lack of Grade A accommodation available,
developers are now considering the next generation of
new office space. Dundee Waterfront has named Our
Enterprise and Robertson Group as Dundee City Council’s
partners to develop Plot Two and Plot Six within Dundee’s
ambitious Waterfront scheme. Our Enterprise has
revealed plans for a new Design and Innovation Quarter
which include flexible office/studio space for the creative
industries, while Robertson Group will look to provide
a £40 million mixed-use scheme including 4,645 sq.m.
of Grade A office space.
At City Quay, proposals have been submitted to turn
Shed 25, a category B-listed dockside transit shed,
into a mixed use development including eleven new
start-up offices.
9
SCOTTISH PROPERTY REVIEW APR/16
Industrial
Good occupational markets and low supply in Scotland’s
Central Belt industrial market had been beginning to
stimulate speculative development proposals but this
has been set back by reduced industrial rates relief.
Supply of industrial property continues to fall within the
Greater Glasgow market and most locations in the West
of Scotland. Availability has been trending downwards
since late 2011 and asking rents have been rising since
the middle of 2013. The development sector has shown
greater interest in creating new product, however tender
returns are showing a marked rise in construction costs
and there are still few projects on site. Certainly far too
few to cater for active and latent demand.
At the time of writing, the following modern buildings
are in legal hands: 2 James Street, Bellshill (4,831 sq.m.);
44 Fullarton Drive, Cambuslang (3,530 sq.m.); 1 Springhill
Drive South, Glasgow Business Park (3,732 sq.m.);
101 Cambuslang Road (1,094 sq.m.); and 3 Watt Road,
Blantyre (3,192 sq.m.). Deals on these buildings should
complete within the next few weeks. In addition, M7
Real Estate has announced that Imperial Park, Linwood,
Paisley is fully let following a deal to Supply Technologies
for the remaining Unit 4 (1,858 sq.m.). A further
demonstration of demand has been shown by the early
viewings and issue of terms on MEPC’s 1,811 sq.m.
Building 601 at Clyde Gateway East, which was only
vacated by the previous tenant in April 2016.
The availability of modern industrial units of 1,393 – 4,645
sq.m. in prime locations is now at critically low levels for
a city of Glasgow’s size. A lack of space is now restricting
take-up and the vacancy level has plateaued not because
of a lack of demand, but because some of the available
space is unsuited to current needs. Thousands of square
metres of obsolete industrial buildings are included in the
already low vacancy rate of c. 8.4% for the Greater Glasgow
area (CoStar). The availability of modern, occupiable space
is much lower and it is possible that unfilled demand is
being forced to take space outwith the Central Belt and
perhaps even outwith Scotland.
The level of interest from new entrants to the Scottish
market has been disappointing. Most of the interest is
from companies already operating here. There has been
a decline in enquiries from small to mid-sized Englishbased businesses seeking opportunities in Scotland.
The uncertainty over Scotland’s political future is affecting
investment interest and may also affect occupational
demand from inward investors, although a company
that has decided to delay or abandon plans for an
entry into the Scottish market is unlikely to make its
position known.
10
The industrial leasing activity listed on page 11 is
encouraging and second-hand stock is achieving in excess
of £65 per sq.m. Development remains limited however.
Appraisals point to the need for a further significant rise
in rents to combat rising costs. For example, the required
rent on a 1,858 sq.m. unit is heading towards £86 per sq.m.
given construction cost inflation, increased building
standards and fewer contracting businesses to carry out
the work. This is placing pressure on land values, but the
land element is a relatively small part of the overall cost.
Prime industrial land is around £0.433 million per hectare,
although there have been few transactions to confirm
pricing and higher costs will depress land values.
Some developers are committed to speculative
development. J Smart & Co is currently on site to construct
a 2,024 sq.m. unit at Belgrave Point, Bellshill, a completion
date is set for May 2016 and the quoting rent is £86 per
sq.m. Fusion Assets is set to continue with its sixth
investment utilising the SPRUCE fund and taking the total
invested so far to over £43 million. Strathclyde Business
Park is currently on site where 15 smaller units will be
created, while at Gartcosh, J Smart & Co has been
appointed as Fusion’s preferred development partner
and the scheme is being appraised with the likely intention
to bring forward a single building of c. 1,858 sq.m. At
Hillington, Patrizia Immobilien AG and Oaktree Capital
Management are appraising projects with the aim of
bringing new product to the thriving estate in 2016. MEPC
will pursue a single speculative unit of 1,627 sq.m. at
Clyde Gateway East. With an intended start date of June
2016 and completion in early 2017 the quoting rent is
likely to be in the region of £86 per sq.m. At Eurocentral,
Muse is reviewing further phases of development but
has no definite plans for a site start although discussions
are progressing with a potential funder. At Rutherglen
Links close to Junction 2 of the M74, Harris Finance
has purchased a plot and intends to build a unit of
1,858 sq.m. and perhaps another of 929 sq.m.
Zephyr (Scotland) Ltd purchased the 4 hectare Scotland
Street site in Glasgow for a major re-development
project. The derelict brownfield site currently consists of
dilapidated industrial buildings that formed part of the
former Howdens engineering complex. This strategic site
is less than one mile from Glasgow city centre.
SCOTTISH PROPERTY REVIEW APR/16
Larger industrial deals in the West of Scotland over the last six months include:
Address
Size
Occupier
Unit A, Eastpoint, Righead Industrial
Estate, Bellshill
2,846 sq.m.
Nationwide Platforms
Unit 4 Imperial Park, Linwood, Paisley
1,858 sq.m.
Supply Technologies
Unit 3 Sentinel Court, Atholl Avenue,
Hillington
1,864 sq.m.
Steder Group (UK) Ltd
195 Scotland Street, Glasgow
4 hectares
Zephyr (Scotland) Ltd
The development market is unlikely to consider many
units in excess of 4,645 sq.m. on a speculative basis,
however there is life in the big box market. At Eurocentral,
Amazon completed on the 8,547 sq.m. Zenith at a rent
of £59 per sq.m. and the 5,202 sq.m. Atlas is under offer.
This leaves Vertex at 11,985 sq.m. as the only vacant
building, but it will be joined shortly by the Colossus
buildings at c. 8,733 sq.m. each as Wincanton rationalises.
There are a number of active requirements within the big
box sector.
In East Central Scotland there were no further new
industrial developments completed within the last six
months and only one projected to be on site in 2016.
While there are developers willing to enter into designand-build projects, which would be a catalyst for them
to potentially speculate various phases of a development,
they do require a minimum lease commitment of 15 years.
This shortage of new quality stock, particularly for
occupiers with mid-range requirements of 464 – 1,393
sq.m., should lead to forward funding of new
developments, however this has yet to materialise
as a market cycle.
The speculative development by C&W Assets at West
Edinburgh Business Park, South Gyle, completed in 2015.
It attracted strong enquiry levels from completion and is
now encouragingly 50% let, with a recent letting to MCL
Create Ltd (1,227 sq.m.) at £81 per sq.m.
Investor appetite in the industrial sector remains positive,
underpinned by the restricted supply of good quality
available space with rental growth now widespread
across all size sectors for properties within prime
locations. This momentum should be maintained
throughout the rest of 2016.
The acute shortage of prime available space has witnessed
landlords seeking to maximise the situation by holding out
for longer lease terms with no break options. In addition
incentives continue to be reduced and rental rates
continue to increase from one transaction to the next.
The development cycle for new accommodation is at least
12 months behind the market which, given robust levels
of occupier demand, will continue to impact positively
on rental growth.
Although manufacturing output remains stagnant, there
is positivity from a wide variety of industrial sectors
including distribution and logistics, data centres, service
centres, trade and e-commerce all contributing to
economic growth and take-up.
Owner-occupiers are being priced out of prime stock
and are now turning their attentions to secondary
accommodation and in some cases are acquiring
properties that need an element of refurbishment,
the majority of this accommodation having being built
in the 1970’s and 1980’s and by the public sector.
Landlord refurbishments include Standard Life
Investments at Bankhead Industrial Estate, Sighthill;
Royal London at Seafield Industrial Estate, Edinburgh;
Dunnotter Estates at Pitreavie Business Park in
Dunfermline; and London & Cambridge at Middlefield
Industrial Estate, Falkirk.
In prime locations, mainly within Edinburgh and the
immediate surrounding area, rental levels have increased
for prime space within the last six months and range
between £80 and £86 per sq.m. for units of up to 1,070 sq.m.
Notably over the past six months, tenants with lease
events as far as 12 months in advance are looking to
engage with their landlord to discuss their longer term
intentions and lease extensions. In order to maximise
incentives and keep rental levels at a market rate they
are prepared, in some cases, to commit to longer leases.
There have been a number of notable transactions within
Edinburgh: following Peveril Securities’ acquisition of
7Hills Business Park, Bankhead Crossway South, Sighthill
Industrial Estate, Unit 2 (873 sq.m.) has been let at £86
per sq.m. Remaining land within the development
continues to attract strong interest from distributors
and trade counter occupiers, with the landlord due to
consider their development strategy within the next
few months; Stevenswood Ltd has committed to Unit 2
Catalyst Trade Park, Sighthill (550 sq.m.) for a 10-year
period at £80 per sq.m.; on the south side of Edinburgh
city centre, Kiltane Retail Ltd has leased the extensively
refurbished 254/256 Causewayside (853 sq.m.) from Ross
Motors at £75 per sq.m.; Jewson, part of the Saint-Gobain
Group, extended their lease at 15-25 Ratcliffe Terrace,
Edinburgh (1,760 sq.m.) for an additional 10-year term
at £74 per sq.m.
11
SCOTTISH PROPERTY REVIEW APR/16
Larger industrial deals in the East of Scotland over the last six months include:
Address
Size
Occupier
7 South Gyle Crescent Lane, South
Gyle, Edinburgh
1,328 sq.m.
JC Decaux
West Edinburgh Business Park, South
Gyle, Edinburgh
1,227 sq.m.
MCL Create Ltd
Unit 1 Firth Road, Houstoun Industrial
Estate, Livingston
2,280 sq.m.
Lareine Engineering Ltd
Unit 5 Buko Business Centre, Ashley
Road, Glenrothes
717 sq.m.
Bay Solutions Scotland Ltd
9 Craig Leith Road, Broadleys Business
Park, Stirling
3,775 sq.m.
Blue Group
Block 24 Kilspindie Road, Dryburgh
Industrial Estate, Dundee
3,775 sq.m.
JF Kegs Scotland Ltd
On the east side of the city, Retail Home Stores has taken
the extensively refurbished Unit 9 Eastern Industrial
Estate, Newcraighall (468 sq.m.) owned by South Yorkshire
Pension Authority for a new 10-year term at a rent of £86
per sq.m.
Midlothian, specifically Bilston Glen Industrial Estate,
continues to outperform. Recent deals include: Pentland
Components committing to the last remaining units (464
sq.m.) at C&W Assets’ speculative Phase 2 development on
a new 10-year term at £70 per sq.m.; Unit 1 Dryden Vale
(238 sq.m.) to HSS at £70 per sq.m.; and Stevenswood Ltd
leasing Unit 20 and 21 Dryden Vale (478 sq.m.) at
£70 per sq.m.
The occupancy levels in West Fife continue to remain
high with the more well-established estates, such as
Belleknowes Industrial Estate, Inverkeithing and Rosyth
Europarc, sustaining full occupancy. Central Fife
(Glenrothes, Markinch and Kirkcaldy) has seen higher
vacancy rates due to over-supply of older manufacturing
premises, significant company closures and the problems
relating to the oil and gas sector. Reduced vacant
industrial rates relief will put additional pressure on
stock, which in some cases could lead to demolition
of older, larger buildings.
The average quoting rents for buildings above 2,322 sq.m.
in Fife are £16 – £32 per sq.m. Recent transactions in Fife
include: Unit 5 Buko Business Centre, Ashley Road,
Glenrothes (717 sq.m.) let to Bay Solutions Scotland Ltd
at £27 per sq.m. and the former Kingdom Services site
at Halbeath, Dunfermline sold to Fife Council.
Within West Lothian, the sentiment is positive with
limited supply, steady rental growth and high levels of
take-up reported. At Inchwood Business Park, Bathgate,
a speculative development by C&W Assets was completed
in 2015 and the last remaining unit is now under offer.
Previous rents on the estate have achieved £70 per sq.m.
Secondhand deals within West Lothian typically range
12
between £43 – £48 per sq.m. Recent transactions include:
Pet Planet has recommitted to Unit 4 Kingsthorne Park,
Houstoun Industrial Estate (2,470 sq.m.) at £46 per sq.m.
and Unit 1 Firth Road, Houstoun Industrial Estate,
Livingston (2,280 sq.m.) let to Lareine Engineering Ltd
with a quoting rent of £43 per sq.m.
The industrial market in Aberdeen has once again
experienced a challenging six months with the price of
Brent Crude Oil dropping to $28 per barrel, the lowest
since 2003. The oil price has risen since then and at the
time of writing is above $40 per barrel, but this is not
significant enough to generate increased activity in the
oil and gas sector and consequently, the city’s industrial
property sector.
Industrial take-up in the last six months totals 31,255 sq.m.,
which represents a 10% increase on the previous six
months. The number of deals completed has risen from
28 to 40, a 43% increase. The sentiment in the market
place, however, does not reflect this rise and a number
of deals that have been negotiated over the last 9-12
months happen to have concluded within this six month
review period.
Take-up increased for units below 929 sq.m., most notably
for units between 186 – 464 sq.m. where activity is up by
90%. Take-up for smaller units of 0 – 185 sq.m. is up 45%
and for units of 465 – 929 sq.m. by 40%. Larger industrial
premises appear to be more difficult to lease as take-up
for premises in excess of 930 sq.m. is down by 22%,
despite an increase in supply.
Transactions larger than 930 sq.m. include: Unit 7B at
ABZ Business Park, Dyce to Aramark (1,718 sq.m. + yard);
Unit 2, Denmore Place, Bridge of Don to J2 Subsea Ltd
(1,188 sq.m. + yard); and Woodside Road, Bridge of Don to
Thistle Windows & Conservatories Ltd (2,915 sq.m. + yard).
Supply has increased in the last six months from 79,747
sq.m. to 85,560 sq.m. which represents an 8% increase.
SCOTTISH PROPERTY REVIEW APR/16
Larger industrial deals in the North of Scotland over the last six months include:
Address
Size
Occupier
Unit 7B, ABZ Business Park, Dyce
1,718 sq.m. + yard
Aramark
Unit 2, Denmore Place, Bridge of Don
1,188 sq.m. + yard
J2 Subsea Ltd
Woodside Road, Bridge of Don
2,915 sq.m. + yard
Thistle Windows & Conservatories
Ltd
Wellington Road/Greenwell Road,
Aberdeen
2,055 sq.m. on a 1 hectare site
Lidl
The number of properties has risen from 82 to 92, a
12% increase. Supply is up across all size ranges with
the exception of 186 – 464 sq.m. where it is down by 35%,
due to the high number of transactions being carried out
in this size bracket.
Grangemouth-based Jarvie Plant Hire is investing in a new
purpose-built depot on a 1 hectare site at Dunsinane
Avenue, just off Dundee’s Kingsway, and trampoline
centre Ryze is set to bring a £3 million indoor park
to an undisclosed location in Dundee.
Rental levels in the Aberdeen industrial market have
remained stable, with new build rents remaining at £97 per
sq.m. for industrial accommodation, £188 – £194 per sq.m.
for offices and £19 – £21 per sq.m. for secure concrete
yards. It has most certainly changed from a landlord’s
to a tenant’s market, as shorter term lease commitments
and incentives are now having to be offered.
Number of industrial transactions
in Scotland
Despite it being a more challenging market for developers
and landlords, a number of developers across the city
have still commenced speculative industrial development
projects. These are: The Core, Bridge of Don by
Mountgrange comprising warehouse (1,951 sq.m.),
offices (557 sq.m.) and yard (3,035 sq.m.); Aberdeen
Gateway Business Park, Cove by Muir Group comprising
warehouse (929 sq.m.), offices (418 sq.m.) and yard (929
sq.m.); and 25 Silverburn Crescent, Bridge of Don by
Nu-Style Products Ltd comprising warehouse (540 sq.m.),
offices (372 sq.m.) and yard (207 sq.m.).
1000
0
2012
2013
2014
2015
2016 (Q1)
It is expected that no further speculative developments
will be built until such time as some of the existing new
builds and those under construction are occupied and
lease lengths return to 10+ years. Interestingly, active
requirements are still following the new-build stock and
will most likely result in new transactions, but on terms
more favourable to the tenant than experienced in
recent years.
In the largest industrial requirement in recent years,
Amazon has signalled their intent to open a new depot
in Dundee. Although details of the delivery centre are yet
to be released, suitable premises have been identified
and negotiations are at an advanced stage.
Elsewhere, Craft beer brewer 71 Brewing is in the process
of converting an industrial warehouse at 36-40 Bellfield
Road (669 sq.m.); Hawkhill Brewery Company opened
within refurbished accommodation at Sugarhouse Wynd
(170 sq.m.); Nortruck Services Ltd has taken Units 6 & 7
Ballinghall Industrial Estate, Brewery Lane (373 sq.m.);
and JF Kegs Scotland Ltd leased industrial accommodation
within Block 24 Kilspindie Road, Dryburgh Industrial
Estate (968 sq.m.).
13
SCOTTISH PROPERTY REVIEW APR/16
Retail
and Leisure
Scotland’s retail property market is active and focused on
re-energising, expanding and diversifying existing prime
locations, generating the first rental growth for four years.
Glasgow has seen activity on prime Buchanan Street with
a new letting to Swatch within the former EE premises
at no 28, and Massimo Dutti has secured the former USC
space at no. 64 as its first store outside London. Forever
21 is to close its flagship store at 185 Buchanan Street,
however the unit has since been let to H & M. New
arrivals on the expanding restaurant scene are Byron
with their new restaurant on West George Street and
Miller & Carter with their premium steak offering within
the former Post Office at St Vincent Street.
Edinburgh city centre’s largest investment in a generation,
Edinburgh St James, is underway. TH Real Estate’s £850
million redevelopment will comprise more than 93,000
sq.m. of shopping, leisure, hotel and residential
accommodation. Anchor tenant John Lewis Partnership
will continue to trade throughout the redevelopment.
Some existing occupiers of the St James Centre are
anticipated to open in alternative city centre locations,
with potential to relocate back into the new centre in
improved accommodation. The other main addition to
Edinburgh’s landscape is Standard Life Investments/
Peveril Securities’ St Andrew Square development where
the landlords will add to earlier lettings to TK Maxx,
Busaba Eathai and Drake & Morgan with deals now
completed with Dishoom, STK Rebel and Big Easy.
On Princes Street, shoe retailer Skechers opened
at no 79 and Card Factory took 119a (the former
Phones 4 U shop).
high end bar and restaurant at 172 Nethergate (1,057
sq.m.) and Frankie & Benny’s plan to open their first
Dundee restaurant within the Overgate Centre (352
sq.m.). Schuh has relocated to larger premises and Tiger
Stores opened their first Dundee outlet both within the
Overgate Shopping Centre. Fashion & footwear retailer
Size? has taken 82 High Street and The Entertainer toy
shop plans to open a store within the Wellgate Centre.
Within the Bon Accord Shopping Centre, Aberdeen,
mobile phone provider EE is relocating to a larger store
and stationery retailer Smiggle is taking a unit. Adjacent
to the centre at 139 George Street, fitted kitchen retailer
Magnet is opening a store. On Schoolhill, fashion and
homeware store Oliver Bonas opened in the site of the
former Littlejohns restaurant. At the Trinity Centre recent
lettings have been announced to Northern Diamonds and
Warren James in addition to Chopstix. Union Square has
attracted a Byron restaurant and All Bar One announced
it is to open within Muse Development’s Marischal Square
scheme.
Orion Capital in East Kilbride reports a further two
restaurant units under offer with lettings underway
to a buffet style occupier and a coffee chain. A planning
application has been lodged by London & Scottish
Investments for a £40 million retail development at Peel
Park, comprising 10,000 sq.m. of retail space in 12 units,
plus two 334 sq.m. drive-thru units.
Out-of-town, Next plc has secured a letting for their
largest Scottish store at Peel Retail Park, Straiton,
totalling 7,400 sq.m., to relocate from their existing
1,400 sq.m. unit which opened just three years ago.
At Silverburn Shopping Centre, Bella Italia recently
opened a restaurant and Tortilla is opening its first
restaurant in Scotland. Additional lettings have been
concluded to Tempo Tea Bar and stationary chain Smiggle.
In Dundee, the influx of new restaurants and bars
continues apace with independent brewer Innis & Gunn
opening new premises: The Beer Kitchen, at 10 South
Tay Street (343 sq.m.); and Rosemount Taverns lodging
an application for a new eatery at 19 Reform Street
(165 sq.m.) replacing Costa which is relocating to 2-6
Murraygate (365 sq.m.). Cosmo Molinaro is opening a
At Inverness Retail Park, British Land has re-geared a lease
with Boots, along with recent new lettings to Frankie &
Benny’s, Nando’s and Bella Italia within the former Comet
space. It is understood that another retailer is under offer
on a further 500 sq.m. unit. At Inshes Retail & Leisure
Park, B&M has taken space within a newly constructed
2,136 sq.m. unit alongside a McDonald’s drive-thru.
14
SCOTTISH PROPERTY REVIEW APR/16
Ediston Real Estate is in the final phase of Gallagher
Shopping Park in Port Glasgow with pre-lets to M&S
Simply Food, Next, TK Maxx, B&M and Watt Brothers.
In Dunfermline, toy shop The Entertainer opened a store
within the Kingsgate Shopping Centre and at Fife Leisure
Park a drive-thru Starbucks has opened and Marston’s
Inns is building a 27-bedroom hotel to sit beside its
restaurant.
At Fife Central Retail Park, Kirkcaldy an M&S Simply Food
opened in the former Next unit (who previously opened
a Next superstore elsewhere on the park).
At the Howgate Centre in Falkirk, Glasgow-based Watt
Brothers plan to open a new store in the former HMV
and Argos units.
New entrants to the out-of-town retail market include:
Tapi Carpets & Floors who have a target of 12-14 stores in
Scotland and are well underway with recent acquisitions;
Jolleyes Petfood Superstores opened their first store at
Inveralmond in Perth; and HomeSense (part of the TK
Maxx family) opened their first store at Fort Kinnaird,
Edinburgh. Other acquisitive occupiers in this market
include Next, with their planned openings at East Kilbride,
Dundee, Port Glasgow and Straiton; B&M and Home
Bargains have also been busy acquiring sites in Edinburgh,
Aberdeen, Fraserburgh, Musselburgh, Falkirk, Kilmarnock
and Larkhall. Warren James has also been involved in
acquisitions in Kilmarnock, Ayr, Braehead, Glasgow Fort,
Hamilton and Paisley with a further four shops currently
under offer. Aldi, DFS, The Range, Wren Living, Oak
Furnitureland, Sofaworks, Nike, Pets at Home, TK Maxx,
Sports Direct and Smyths Toys also have plans for
expansion.
The review of market activity above confirms that the
retail sector remains focused on prime streets, malls and
parks, with a side order of restaurant deals. This activity
is helping to re-energise and expand existing locations
rather than driving a new wave of development (other
than at the major Edinburgh St James).
The number of High Street voids are at their lowest level
for four years as the numbers of closures decline. Last
year’s closures were most prevalent in “money shops”
and men’s clothing. In total 280 shops closed in Scotland
against 221 new openings, showing an overall reduction
of 59 shops compared with 66 in 2014. (PwC/Local data
Company).
There have been fewer high profile failures in the retail
market although at the time of going to print BHS and
Austin Reed were entering administration. One casualty,
Brantano, has been part-saved under the Brantano
banner, Poundland has reportedly acquired 20 of these
sites and intends to also roll out a further 60 stores per
year for the next three years.
Although closures have now levelled off, it is important
that planning policies build on this modest improvement.
In some cases, however, there is a disconnect between
planning policies, which lag behind the market, and the
key aim to rejuvenate the high street by reducing voids
and increasing footfall. It is therefore important for
Councils to take a pragmatic approach when dealing with
proposals, for example for Class 3 food and drink uses,
which will make use of vacant retail property but do
not fully accord with restrictions to Class 1 shops. It is
understood that certain Councils are now re-assessing
this specific issue to increase footfall in areas where there
is a significant level of vacant Class 1 units or where there
is evidence of market decline, notably; longer voids,
decrease in rent and poorer covenants.
Ryden’s prime retail rent index (covering Scotland’s top
twenty shopping locations, see chart below) has seen
a rise after remaining static since 2012. The rises have
been, as expected, in the prime retail locations of
Glasgow and Edinburgh.
Retail rent index
Retail index
CPI
150
100
50
0
MAR-06
MAR-07
MAR-08
MAR-09
MAR-10
MAR-11
MAR-12
MAR-13
MAR-14
MAR-15
MAR -16
Source: ONS/Ryden. Index baseline of 100 is at 2015.
15
SCOTTISH PROPERTY REVIEW APR/16
Investment
2015 was a relatively strong year for the Scottish commercial
property investment market. However in 2016 the pace of
the market has yet to pick up. There is a perception that the
market has peaked in the investor hotspots, in particular
London and the south-east.
There is no doubt that the forthcoming EU Referendum in
June, allied to the political situation in Scotland, has been
a contributing factor to the slowdown. The uncertain
outlook appears to have been of particular concern to UK
institutional investors and in turn their activity has been
very selective. The hangover from Scotland’s Referendum
in September 2014 continues to linger, as fund managers
carefully consider their weightings to Scotland and also
apply a perceived risk premium to new propositions
north of the border.
The political landscape has not deterred a more select
group of UK and overseas investors. The majority of
activity has been in the office sector and there is no doubt
that the cities are the subject of increasing international
interest. Robust occupational markets and a discount
to prime investment opportunities in other UK Regional
centres have been an appeal. The shortage of Grade A
office stock in both Edinburgh and Glasgow presents a
strong case for real rental growth in the short to medium
term. Conversely, there is increasing supply in Aberdeen
which, coupled with the oil industry downturn, will
generally limit rental growth to leases with built-in uplifts.
Yields in Scotland, excepting Aberdeen, have remained
relatively firm and in some instances, pricing for prime
product has improved. All Property Total Returns for
Scottish property for the four quarters to December 2015
were recorded at 9.3%, which represents a decrease on
the equivalent period to December 2014 of 12.4% and
is below the UK All Property Return of 13.1%.
Office
Investor demand for offices in Scotland has been largely
focused towards Edinburgh and Glasgow during the last
six months, with very little happening in Aberdeen due to
the rapid reversal in that market. Inevitably, activity has
been influenced by the comparative strength of occupier
demand and prospects for rental growth. Edinburgh
leads the way in that regard with the recovery now well
established and Glasgow has also seen an improvement.
Conversely, Aberdeen is busy weathering the storm
created by the global downturn in the oil industry
which is depressing demand and increasing the supply
of vacant space.
While all three cities have seen substantial high quality
investment product come to the market, sellers have
needed to look overseas to find buyers as there has been
very little interest from the UK institutions. This has been
the situation for some time now and the approaching
Brexit vote has added to the wait-and-see strategy
adopted by many fund managers. There is still a weight
of money seeking product in the private investor arena,
although again this is largely confined to Edinburgh
and Glasgow.
The headline sales completed in the last six months in
each city are:
Glasgow has seen the off market sale of 2 West Regent
Street to TH Real Estate/Warburg-HIH for £31.5 million.
This Grade A multi-let office building changed hands
at a yield of 5.84%. Kennedy Wilson was the seller.
In Edinburgh, the standout transaction was Deka
Immobilien’s purchase of the Atria buildings in the city’s
Exchange district from Edinburgh City Council for a price
of £105.25 million. Atria 1 and 2 provide some of the best
office space in the capital and with a WAULT in excess
of 15 years the price provides the German investment
company with a net initial yield of 5.35%.
16
SCOTTISH PROPERTY REVIEW APR/16
Aerium’s Glenn Arrow UK Property Fund sold the Windsor
Portfolio for £365 million to Mapletree Investments from
Singapore, which included the 11,660 sq.m. iQ building
on Justicemill Lane, Aberdeen, tenanted by Wood Group
and Centrica. The portfolio included prominent buildings
in Bristol and Manchester and the price paid reflected
a blended yield of 5.7%.
The volume of office investment transactions is expected
to fall over the next six months, with a quiet lead-in to the
Brexit vote in June followed by the summer period. That
said, there are some substantial office buildings available
in Scotland which could sell in the coming months.
Examples include Exchange Place in Edinburgh and
CityPark 1 in Aberdeen, each of which comes with
a price tag in excess of £80 million.
Yields for prime stock in Edinburgh and Glasgow are in
the 5.25% – 5.75% range. Aberdeen is harder to estimate
due to the lack of recent transactions, although the best
product in the city might sell for around 100 basis points
cheaper.
Total Returns for Scottish office property for 2015 were
9.3%, a fall from 13% in 2014, mainly as a result of Capital
Growth reducing from 6.3% to 3.4%. In comparison, Total
Returns for UK offices for 2015 comprised 17.7%, falling
from 22.7% in 2014.
Office property investment deals include:
Address
Property
Purchaser
2 West Regent Street, Glasgow
7,121 sq.m. multi-let Grade A office building.
Let to Colliers, FanDuel, Willis and Digby Brown
TH Real Estate/
Warburg-HIH for
£31.5 million (5.84%)
100 Bothwell Street, Glasgow
9,465 sq.m. single-let office building. Let to Student Loans
Company Ltd until Dec 2023 with tenant break option
December 2018
Oval Real Estate for
£25.55 million (7.56%)
33 Bothwell Street, Glasgow
2,543 sq.m. multi-let office building. Let to Chase de Vere,
Turner & Townsend and Starbucks
Cordatus Real Estate
for £6.98 million
(6.62%)
Ca’d’oro Building, Gordon
Street, Glasgow
4,403 sq.m. multi-let Grade B retail/office. Tenants include
Harper Macleod, Atos and Co-operative Group
Private overseas
investor for £14.1
million (6.5%)
Atria One & Two, Edinburgh
18,799 sq.m. prime Grade A office buildings. Multi-let to
tenants including Alliance Trust, Brewin Dolphin and PwC.
WAULT of approx. 16 years (14 years to breaks)
Acquired by Deka
Immobilien for
£105.25 million
(c. 5.3%)
Standard Life House,
Edinburgh
HQ office building extending to 25,521 sq.m.
Leased to Standard Life until July 2031
Clients of HSBC
Private Bank for
£93.75 million
(c. 5.09%)
Citymark, Edinburgh
9,486 sq.m. single-let city centre building. Let to Bank of
Scotland plc wholly occupied by Lloyds Banking Group.
Lease expiring January 2026
Trinova Real Estate
for £43.65 million
(c. 5.54%)
Sainsbury’s Bank,
Edinburgh Park
Out-of-town HQ building entirely let to Sainsbury’s Bank
until Sept 2029 (tenant break option September 2024)
CCLA for £19 million
(c. 6.31%)
iQ Building, Justicemill Lane,
Aberdeen
11,650 sq.m. office building let to Centrica and Wood
Group
Mapletree Investments
as part of a £365
million portfolio
34 Carden Place, Aberdeen
191 sq.m. single let townhouse office with four years
unexpired
Private local investor
for £852,500 (6.76%)
17
SCOTTISH PROPERTY REVIEW APR/16
Industrial
The announcement by the Scottish Government that
void rates would be imposed on industrial property
commencing 1 April 2016 came as a nasty shock and has
further postponed recovery in the development market.
The absence of prime transactional activity coupled with
the shortage of institutional buyers currently makes it
difficult to gauge exactly where prime yields are. For the
time being, the range given in our previous Review of
6.75 – 7.25% is retained.
Activity levels have been low over the last six months,
with no institutional grade estates changing hands and
muted institutional demand. Unfortunately the Scottish
market is seldom able to provide modern estates in the
desired lot sizes of £10 million or larger.
Activity in the single let sector of the market has been
steady, with a range of UK and overseas buyers taking
advantage of some attractive returns for medium and
long term income assets. With yields of 6 – 6.75%
achievable, this sector provides good value in the context
of a market with negligible availability of modern stock.
Until new development proceeds, existing industrial
landlords should continue to enjoy good performance
on their assets, with low vacancy levels, steady occupier
demand and pressure on rents becoming the norm
across prime Central Belt locations.
Total Returns for Scottish industrial property for 2015
were 13.2%, a fall from 18% in 2014, mainly as a result
of Capital Growth reducing from 10.3% to 6.1%.
In comparison Total Returns for UK industrial for
2015 comprised 16.8%, falling from 23.3% in 2014.
Industrial property investment deals include:
Address
Property
Purchaser
40 Cambuslang Road,
Cambuslang
2,591 sq.m. modern single let industrial unit let to
Hydrasun Ltd on FRI terms expiring 2031, with tenant
break option 2026. Passing rent of £174,319 pa
Private investor for
£2.38 million (c. 6.9%)
25 Coddington Crescent,
Eurocentral
12,842 sq.m, purpose built facility. Let to Scottish Power
UK Plc until 2022. Passing rent of £660,000 pa
South African investor
for £8.75 million
(7.1%)
Baillieston Distribution Centre,
Glasgow
16,422 sq.m. multi-let industrial estate across 34 units.
Let on short to medium term income. Six vacant units
Rockspring Property
Investment Managers
for £5.82 million
(c. 8%)
Belgrave Central, Bellshill
Industrial Estate, Bellshill
2,305 sq.m. modern multi-let estate across 13 units.
Let on short to medium term income
Buccleuch Property
Group for c. £1.5
million (c. 8%)
Stenhouse Mill Wynd
Industrial Estate, Edinburgh
Multi-let industrial estate. Extends to c. 5,870 sq.m.
Tenants include Travis Perkins, Chubb and Rexel Senate.
WAULT of approx. 6.5 years to expiry (4.98 to breaks)
Telereal Trillium for
£5.1 million (c. 7.6%)
The Print Works, East Telferton
Industrial Estate, Edinburgh
2,345 sq.m. purpose built printing/distribution facility
leased to Scottish Widows Services Ltd until December
2026. Tenant break option December 2023. Fixed uplifts
of 3% pa
London Metric for
c. £2.45 million (c. 8%)
Units 2A, 2B & 2C Pentland
Industrial Estate, Loanhead
Two self-contained industrial units extending to a total
of 4,130 sq.m. leased to The BSS Group and Nationwide
Crash Repair Centres
Private investors
for £1.65 million
(c. 8.61%)
Ground Lease Portfolio, Altens
and East Tullos, Aberdeen
14 sites totalling 11.88 hectares in two industrial estates
with a WAULT of 84 years
Aberdeen Asset
Management for
£16.05 million (3.6%)
Badentoy North, Portlethen
1,700 sq.m. new industrial unit let for 20 years to KCA
Deutag Drilling Ltd
ABF Pension Fund for
£5.4 million (5.97%)
Kirkton Drive, Raiths Industrial
Estate, Aberdeen
15 year sale and leaseback of a 4,140 sq.m. specialist
industrial unit to Helix Well Ops UK Ltd
Aprirose for £7.65
million (7.46%)
18
SCOTTISH PROPERTY REVIEW APR/16
Retail
The retail investment sector has continued its steady
improvement, reflecting the continued recovery in the
occupational market. Increased demand from a wider
investor base allied to limited prime/strong secondary
product and an improving occupational story in certain
sub sectors has widened investors’ focus. Although prime
and secondary space in strong regional centres remain
the principal targets, there are signs that investors are
willing to embrace more risk. With limited prospects
of yield compression to drive up prices, opportunities
to actively manage or re-position an asset are now
in favour as investors seek to deliver target returns.
The shopping centre sub-sector of the market is
particularly polarised, with dominant and strong
secondary centres the most sought after while poor
secondary and tertiary continue to suffer from excess
space. Rental growth across the sector has been negligible.
Prime activity has been limited however recent news that
TH Real Estate has secured co-investors for the proposed
Edinburgh St James is hugely encouraging. The scheme
has the potential to elevate Edinburgh’s status as a retail
centre significantly. The proposed sales of the Gyle (West
Edinburgh) and Ocean Terminal (Leith) will offer strong
market indicators; each has its challenges and demand
may be impacted by the imminent EU Referendum.
In a UK context the retail warehouse sector (excluding
central London shops) was the best performing retail
sub-sector last year. The sector has enjoyed a growth
in footfall and in conjunction with sales growth this has
resulted in falling vacancy rates across the sector.
There has been an uptick in occupier demand across
convenience, comparison and food and beverage sectors.
The improvement in the UK housing market has also
helped drive demand for DIY and household goods.
Despite record volumes within this sector having been
transacted across the UK, Scotland has had limited
activity within this sub-sector over the Review period.
The retail warehouse sector may well offer buying
opportunities within Scotland over the next six months.
Investor appetite for prime high street opportunities in
Glasgow and Edinburgh has increased and now has a
more international flavour than ever before. Larger and
well configured assets command a premium. With high
street retail rents having rebased and in certain instances
showing signs again of improvement, demand for prime
and the best secondary space has driven prices up (and
yields down). Rental and capital growth across many of
the smaller centres and less prime locations is still some
way off as these sub-sectors continue to wrestle with over
supply and over-renting. However, a well let shop in a
good regional centre or secondary pitch continues to
appeal to the private investor market and rightly so, as it
delivers an attractive yield of 7% plus in many instances
and leaves other investment alternatives in the shade.
Total Returns for Scottish retail property for 2015 were
7.3%, a fall from 10.9% in 2014, mainly as a result of
Capital Growth reducing from 5% to 1.8%. In comparison
Total Returns for UK retail for 2015 comprised 9.7%,
falling from 14.2% in 2014.
Retail property investment deals include:
Address
Property
Purchaser
35-39 Gordon Street, Glasgow
Prime retail unit let to Steamer Trading Limited on a new
15 year FRI lease expiring 2030 at an initial rent of
£230,000 pa (£126 psf Zone A)
Private investor for
£3.85 million (5.63%)
Shawlands Shopping Centre,
Shawlands, Glasgow
10,978 sq.m. mixed retail, leisure and office scheme,
tenants include Pure Gym, J D Wetherspoon,
Poundstretcher, Boots and Sainsbury’s
Ediston – final price
subject to NDA.
Quoting price –
£8 million (8.93%)
The Townhouse, Nelson
Mandela Place, Glasgow
2,624 sq.m. leisure unit situated in a prime location, let to
Thai Leisure Group Ltd on FRI terms with c. 16 years
unexpired. Passing rent of £300,000 pa with RPIX uplifts
every five years
Spanish investor for
£5.95 million (4.75%)
24-28 Frederick Street,
Edinburgh
Mixed use (retail, leisure, offices) city centre property of
c. 7,147 sq.m. Tenants include Vision Express, Thomas
Cook (sub-let to Co-op Food Group). WAULT of c. 6.5 years
St Bride’s Managers
for £7.55 million
(c. 6.51%)
78/79 Princes Street and 4/18
Hanover Street, Edinburgh
Prime corner mixed use city centre block extending to c.
2,420 sq.m. Fully-let to tenants including Signet Group plc,
JD Sports Fashion plc, Yo! Sushi UK Ltd and Virgin Media
Ltd. WAULT of approx. 6.14 years
GLL Real Estate
Partners for £18.95
million (c. 5.15%)
125 Union Street, Aberdeen
290 sq.m. unit shop let to Cancer Research UK with five
years unexpired
Prestigic Holdings for
£924,000 (8.46%)
19
SCOTTISH PROPERTY REVIEW APR/16
Outlook
Despite the uncertain outlook there continues to be
a weight of capital from UK and overseas investors
seeking suitable prime, core-plus and value-add property
investment propositions. Notwithstanding the depth and
cross section of interest, it is envisaged that investors will
remain very selective and pricing will remain fairly stable.
With the prospect of yield improvement in the short to
medium term thus limited, investors will increasingly
focus on income growth and asset management
initiatives to deliver returns.
Institutional investor activity in the lead up to the EU
Referendum is likely to be subdued and this continued
malaise may provide an opportunity for overseas and
other UK investors in the short term. In the event that
the UK votes to stay in the EU the market will enjoy
a “bounce” and some of the caution expressed by UK
institutional investors towards Scotland may dissipate.
As strong regional markets, both Glasgow and Edinburgh
would be set to benefit from an uptick in institutional
demand and activity.
In due course, the limited supply of suitable investments
may prove to be an issue, and a number of more
opportunistic investors may focus on the development
sector as a way of securing product and achieving an
acceptable return. Speculative involvement alongside
contractors and developers may materialise, particularly
in relation to office, warehouse and mixed-use
propositions.
Investor demand for alternative sectors such as long
income, student, hotel and serviced apartment will
continue to be positive. Activity may also emerge in
the PRS (build-to-rent housing) sector with developers
actively seeking sites for schemes in Edinburgh and
Glasgow, although it is anticipated that funders will
be somewhat cautious when assessing the viability
of the first developments of this type.
Investment tracker:
Number of transactions over £1 million in Scotland
75
0
2008
20
2009
2010
2011
2012
2013
2014
2015
2016 (Q1)
Edinburgh
Leeds
7 Exchange Crescent
3rd Floor Carlton Tower
Conference Square EH3 8AN
34 St Paul’s Street LS1 2QB
Tel: 0131 225 6612
Tel: 0113 243 6777
Glasgow
Dundee
130 St Vincent Street G2 5HF
Unit 20 City Quay
Tel: 0141 204 3838
Camperdown Street DD1 3JA
Aberdeen
Tel: 01382 227900
25 Albyn Place AB10 1YL
Tel: 01224 588866
Contacts
Bill Duguid, Managing Partner
Dr Mark Robertson, Partner
Karen Forsyth, Research Manager
[email protected]
[email protected]
[email protected]
www.ryden.co.uk
Ryden is the trading name of Ryden LLP,
a limited liability partnership registered in Scotland
We are grateful for the assistance of CoStar and MSCI/Investment Property Databank (IPD).
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