CoStar Analysis: Speculative office construction in Scotland is at its lowest level in several years, but could that soon change?

By Grant Lonsdale - Friday, October 13, 2017 9:36

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Recent legislation on business rates for Scottish developers of speculative schemes could see schemes come forward. CoStar Real Estate Analyst Grant Lonsdale explores.

The Scottish property industry has welcomed legislation which comes into force from 1st April 2018 that means developers of speculative buildings will not be liable for business rates until the first tenant takes occupation.

While the legislation does not directly overcome the reluctance of some lenders to fund projects in the current economic climate (cited by many as the most significant barrier to speculative office construction), the reforms – which also include a 12-month rates ‘holiday’ for any new tenant taking occupation – could go some way towards alleviating risk and unlocking development.

In this article, CoStar reviews recent development activity and the near-term pipeline in Scotland’s three largest cities.

Glasgow

The market received a boost in the form of 110 Queen Street, 1 West Regent Street, and St Vincent Plaza in 2015. These three schemes collectively delivered around 450,000 sq ft of new supply that year. Each of the buildings have proven popular with occupiers, though 110 Queen Street is the only building that is fully occupied. However, speculative construction has been absent in the city centre since then, with more recent development activity focusing on the refurbishment of existing stock. NFU Mutual’s 191 West 

George Street, Praxis’s 310 St Vincent Street, and Castleforge Partner’s Garment Factory are among the largest refurbishments currently underway. Earlier this week, CoStar News reported that Threesixty Architecture and Incremental Group had signed up as the Garment Factory’s first tenants.

Click here for CoStar’s latest Glasgow office market report.

Edinburgh

Very little has been delivered in Edinburgh in recent years, but strengthening market fundamentals have drawn developers back to the table. Quartermile Four completed last year and was fully pre-let to FanDuel and Cirrus Logic prior to its completion. FanDuel later decided not to occupy the 128,000 sq ft building and assigned its space to existing tenant Cirrus Logic and the Bank of Montreal. Quartermile Three is due to deliver imminently. It too secured a major occupier in advance of completion: State Street Bank will move there in early 2018. There are two smaller schemes due to complete in 2018, neither of which are pre-let: GSS Developments’ 2 Semple Street, and Chris Stewart Group’s The Mint Building. Further still, CoStar News reported yesterday that Hermes and BAM will speculatively develop Capital Square (122,000 sq ft).

Click here for CoStar’s latest Edinburgh office market report.

Aberdeen

Aberdeen’s most recent development boom coincided with a downturn in the energy sector, meaning less demand for office space, and a corresponding rise in vacancies. The Capitol was the first of the three schemes detailed in the chart to deliver, and has so far secured PwC, Maclay Murray & Spens, and Chrysaor as tenants, leaving just one floor available. The Silver Fin Building is partially occupied by serviced office firm Orega, while Marischal Square is yet to secure an office occupier, though numerous tenants have signed up for retail and leisure space there. Given that office vacancies have soared over the last couple of years, it is likely that speculative construction will be off the agenda in Aberdeen for some time.

Click here for CoStar’s latest Aberdeen office market report.

glonsdale@costar.co.uk

 

 

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