Glasgow office yields to harden 25 bps

By Paul Norman - Wednesday, September 13, 2017 13:55

Glasgow is poised to see yields for prime offices harden by 25 basis points by 2017 year-end, reports Savills.

Offices in Glasgow (5.8%) are sitting at a 50 bps discount to Edinburgh and Birmingham and a 75 bps discount to Manchester, Bristol and Cambridge. Savills said that while yields for most regional cities have witnessed compression of at least 25 bps over the last three quarters, in Glasgow this is not the case.

However all is about to change says Savills.

Office Grade A rents in Glasgow are the lowest of all of Scotland’s Big six Cities (£30 per sq ft) suggesting a strong potential for rental growth which is attracting investor interest, Savills said.

It adds: "Meanwhile, if we base our estimations on the 10-year average annual take-up, only 18 months worth of supply remains and the next wave of office development in Glasgow is not expected for five years."

As a result Savills says headline rents on refurbished offices have grown 25% since 2012 compared to a 9% rent growth for new build rents over the same time period.

Stuart Orr, investment director at Savills Scotland, said: “Glasgow’s strong occupier market fundamentals coupled with the receding perception of political risk from Scotland gaining independence is attracting evermore investor interest. The weight of money is increasing, both domestically and from overseas parties who have access to cheaper debt, particularly in Germany, and underlying this, with Sterling remaining low a currency play continues to exist in the UK.”

Looking at the wider Scottish commercial property market, in 2017, to year date, Savills has recorded over £910m of assets traded. With a further £770m already under offer the firm anticipates the end of year total looks set to outweigh the 10 year annual average (£1.742 billion).

Orr continues: “What perhaps is most noteworthy of the deals to date across Scotland’s commercial property market is the number agreed off-market, with in excess of 75% of transactions traded in this way. This suggests a build up of determined capital targeting Scotland with investors prepared to go the extra mile to find a home for it, rather than simply wait for the right product to come to the market.”

Key off market deals include: Capella, a 115,286 sq ft office on York Street, Glasgow which sold to Wirefox, with Hong Kong equity, for £48.5m (6.5% net initial yield); Middle Eastern investor Tanyari acquiring 55-59 Buchanan Street, Glasgow for £22.15m (3.99% NIY); and 20-26 Buchanan Street selling to Redevco (Dutch) for £29.3m (4.29% NIY).


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