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Follow on Google News | What’s the outlook for Scotland’s commercial property markets?According to recent forecasts, economic recovery is once again postponed until next year.
By: Ryden Economy Scottish unemployment may be peaking in 2012, confirming the drag effect that the 2008 banking crisis has had upon recovery. Economic growth remains weak as the recession continues to cast its shadow over the recovery. Resumption of a normal economic growth rate continues to be postponed until next year. Offices Despite a subdued occupier market, Glasgow’s office take-up since September increased by 13% to 31,800 sq m. Market activity is spread across a range of sizes and sub-lettings are a notable feature. There have been some deals in the refurbished sector, but little activity in what remains of the new-build Grade A properties. The growing energy and renewables sector is active. Speculative construction of St Vincent Plaza is to commence, with completion scheduled for end of 2013. Further speculative new office development is unlikely before 2014/15. In Edinburgh, take-up over the last six months to March 2012 was 29,649 sq m, a 6% increase, but still 17% below the long-run average. Pre-letting activity has made a return to the market and is likely to continue. The four major sites at Quartermile, Fountain Quay, Caltongate and Haymarket, which stalled during the recession, have begun to re-emerge for a mix of uses. New office developments in central Edinburgh are a minimum of two years away from receipt of planning consent. Refurbishment options will be required to deal with anticipated demand. Demand for office space in Aberdeen is still soaring and is unlikely to weaken in the foreseeable future. Take-up figures are down by 36% to 30,100 sq m, however this does not include over 32,500 sq m of pre-letting activity. The number of deals has increased by 142% to 80, demonstrating high levels of activity at the smaller end of the market. Supply has again decreased, largely due to lack of speculative building. Consequently secondary accommodation is starting to be absorbed by occupiers who have no other choice. Aberdeen city centre now faces a market with no Grade A stock. Financial constraints have to-date precluded speculative development, but with the high levels of demand the market is currently enjoying this may change. Industrial During 2011, companies in Central Scotland often delayed industrial property decisions. In 2012, business growth and a view that the economy is unlikely to become significantly worse are encouraging more activity. The West of Scotland industrial market is showing increased activity following a long period of relatively few larger transactions and very limited new development. Headline rents on good quality stock, particularly within the Glasgow city boundary, continue to hold up. Moving forward, there are expected to be a number of pre-let agreements over the next six to twelve months. Within East Central Scotland there has been continued activity across all size ranges over the last six months. The majority of transactions have occurred within the medium size range, with limited deals occurring above 2,787 sq m. Within Edinburgh, there is an increase in availability of industrial units below 929 sq m. This is partly due to rents remaining high and occupiers moving to cheaper, accessible accommodation outwith the city. As a result there is now downward pressure on headline rents in the city and incentives are on the increase. The industrial market in Aberdeen continues to outperform the rest of the country. High oil prices have instilled confidence and market activity is putting stress on the city’s existing industrial stock. Rental levels have sustained and it remains a landlords’ market. Lease lengths in excess of ten years are being achieved on secondary stock with limited rent-free periods being offered. On the back of strong demand, further speculative development is being undertaken. Retail As consumers continue to be squeezed by low wage growth, high unemployment and high inflation, Scotland’s retail market is showing signs of stress. Major retail destinations are however defying this broad trend and continue to attract investment and even some limited new development. Food store operators continue to show an appetite for both superstores and local convenience stores. Asda, Tesco, Morrisons, Sainsbury’s and The Co-operative have all been acquisitive and Waitrose is expanding in Scotland. In what may be a watershed moment however, Tesco has announced that it is putting on hold any new plans for superstores for the next three years. If this decision becomes a trend it will have implications not only for the retail sector but for property development generally, as the major food store operators continue to be the anchor uses in many development schemes. Investment Transactional activity within the Scottish property investment market has slowed over the past six months as investor caution continues and available stock fails to meet strict criteria of willing investors. Performance has been disappointing, but not surprising. Based upon the IPD Quarterly Index for calendar year 2011, the total return from Scottish All Property at 5% under-performed UK All Property at 7.8%. This under-performance is consistent across all of the main sectors. The office investment sector presents huge contrasts. The buoyant market in Aberdeen is resulting in significant levels of investment activity, while Glasgow and Edinburgh have had comparatively few transactions. Industrial investment activity remains constrained because of economic concerns and continued restrictions on bank finance. There is demand for the right types of industrial investment, however there remains a gap between vendor’s expectations and the returns that active investors require to make purchases in the current market. While this gap persists, activity levels will remain relatively subdued. Polarisation between prime and non-prime retail investments continues as gloomy economic and retailer trends encourage investors to seek the security of a prime pitch, quality covenant, or both. The outlook for the remainder of 2012 appears somewhere between bearish and pessimistic, as the Scottish property market confronts a multitude of challenges. The fragile economy and in most cases occupational markets, corporate instability, Euro zone volatility, a decline in consumer spending, scarcity of bank debt and political uncertainty conspire to undermine the market and limit activity. This subdued market appears set to continue as investor sentiment remains understandably cautious and risk adverse. -ends- Ryden is an independent commercial property firm operating a full-service practice. Service lines include Agency & Development, Investment & Finance, Professional, Building Consultancy, Property Management and Consulting. The firm is headed by Fiona Morton, Chairman and has around 140 people, including 31 partners and 23 associates. Ryden has offices in Edinburgh, Glasgow, Aberdeen, Leeds, Dundee and Inverness. For more information see http://www.ryden.co.uk End
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