Scotland's 2011 Commercial Property Market - What's in Store?
OFFICES
Ongoing demand for Grade A space across Scotland’s main cities means that supply is tightening, and in some places becoming scarce.
In Aberdeen, there is a degree of optimism created by the apparent resurgence of the energy sector. Rents are expected to rise and a record rent looks set to be achieved for larger floor plates, as lettings are anticipated at IQ building. In Glasgow, rents have stabilised for the best space and may even regain some of the slippage it will likely be 2012 before they increase in the Capital. Rents for second hand and poorer quality accommodation will remain under pressure.
The picture is equally mixed in terms of incentives, where they are reducing in Aberdeen, have stabilised in Glasgow but remain competitive in Edinburgh.
There are development opportunities for Funds and equity rich investors in Glasgow and Aberdeen, with development likely in Aberdeen, potentially in Glasgow - although this may drift in to 2012 -and unlikely in Edinburgh in the short term.
On balance, despite ‘few ’ substantial requirements in Edinburgh, which could mean a tougher year ahead, the number of lease events due in 2012-2015 could spark property searches and lead to pre-letting activity .Refurbishments will be a feature of the market as landlords compete for tenants.
INDUSTRIAL
The industrial market looks set to remain generally similar to 2010 in that it will continue to be reasonably active, especially for properties less than 20,000 sq ft. There is cautious optimism in the sector due, in part, to tightening supply, rents holding and plans in some regions for speculative development.
Rents for the best locations and products are stable in Glasgow, where there is a shortage of quality product but they are likely to fall in secondary locations this year. In Edinburgh, rents have held at market peak levels for the best locations and properties. Enquiries in the region remain steady but incentives and flexibility may have to increase for deals to keep pace with 2010. Tight supply in Aberdeen is pushing up rents and minimising incentives - warehouse rents sit higher than in Glasgow and Edinburgh, at around £8-9 psf.
In Glasgow, 2011 will see limited new development outside enterprise zones unless a pre-let or pre-sale is involved but the final industrial Golden Contract plots at Eurocentral will take shape, and developers who secured land in and around Edinburgh last year will start to build smaller speculative schemes this year. It’s unlikely that any medium-sized build projects will occur in Edinburgh this year, and anything large-scale would almost certainly require public sector funding support before developers would give it consideration. Encouragingly, anumber of developers are poised to reinvest their own funds in speculative schemes at Dyce, Altens and Porthlethen, showing confidence in the Aberdeen market.
RETAIL
There is continued over supply of retail accommodation in and out of town. Wrong space in the wrong place remains a critical factor that Councils have failed to address.
There is strength in the supermarket, discount and core fashion sectors and limited opportunities to secure representation in prime areas such as Buchanan Street, Glasgow as far as unit shopping is concerned, and Bearsden/Milngavie or Corstorphine/Morningside as far assupermarket opportunities are concerned.
We anticipate ongoing reports of mixed – good, bad and indifferent - performance on the High Street. Prime shopping areas will continue to attract operators and investment. Secondary and tertiary shopping areas will continue to decline, supported to some extent only by discount/value operators, redevelopmentor change of use to service uses such as bars, restaurants, hairdressers, pharmacies, opticians, travel agents etc.
The supermarket/food stores sector will remain active. Operators will compete over sites that can deliver either through the planning process or through political support.
