Yields in Glasgow set to harden in 2017 – Savills

13 September 2017

Glasgow is poised to see yields for prime offices harden by 25 basis points (bps) by 2017 year-end, says international real estate advisor Savills.

According to the latest research from the firm, 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 says 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. 

View table of regional office yields.

However all is about to change says Savills. Office Grade A rents in Glasgow are currently 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. 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, says: “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 £910 million of assets traded. With a further £770 million already under offer the firm anticipates the end of year total looks set to outweigh the 10 year annual average (£1.742 billion).

Stuart 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 £48.5 million (6.5% net initial yield); Middle Eastern investor Tanyari acquiring 55-59 Buchanan Street, Glasgow for £22.15 million (3.99% NIY); and 20-26 Buchanan Street selling to Redevco (Dutch) for £29.3 million (4.29% NIY).

 
 

General Enquiries

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Key Contacts

Stuart Orr

Stuart Orr

Director
Investment

Savills Glasgow

+44 (0) 141 222 4144

 

Mike Barnes

Mike Barnes

Research Analyst
Commercial Research

Savills Margaret Street

+44(0) 203 107 5459