Flexible, amenity-rich office spaces are becoming increasingly attractive due to their ability to meet the evolving requirements of modern businesses, a trend fuelled by the hybrid working model and a growing emphasis on environmental, social, and governance (ESG) standards.

Angela Lowe, head of advisory and transactions at CBRE Scotland, said: “Future growth for office real estate is largely determined by demand metrics such as GDP growth, working age population, access to highly-skilled workers and forecast office-based employment.

“All of these fundamentals could impact office demand and subsequent size of the occupier footprint in the next decade in Scottish cities. Meanwhile, markets with sufficient development or capacity to refurbish second-hand units will be able to capitalise as trends in ESG and design exacerbate demand for quality space.”

Office markets in Glasgow, Edinburgh, and Aberdeen are demonstrating the impact of these trends.

Glasgow

Glasgow’s office market saw a 30% uptake increase from Q1, with a total of 95,809 sq ft taken up in Q2. However, the overall total for H1 2023 (169,874 sq ft) was lower than H1 2022, showing a preference for smaller-sized leases.

Notable transactions in the second quarter included a 12,008 sq ft letting to We Are Luxe Ltd at St Vincent Plaza, representing the largest deal, 10,424 sq ft at 6 Atlantic Quay to Iomart and 7,294 sq ft to Wizu Workspace at 2 West Regent Street. The sub 5,000 sq ft lettings market dominated once again with 49,302 sq ft acquired across 34 deals.

A shortage of high-quality, Grade A space is influencing the market, with just 2.94% of Glasgow’s total available office space (2.58m sq ft) being new build Grade A. Prime rents are anticipated to increase from £36 per sq ft to £39.50 by year-end due to demand for Grade A spaces and rising construction costs.

Martin Speirs, associate director from CBRE in Glasgow, said: “Despite a fairly lukewarm start to the year, it is clear that Glasgow still has a lot to offer occupiers, as evidenced by the 41 firms that took space within the city in the last quarter. However with a shortage of Grade A supply, coupled with financial pressures, much of the space being taken isn’t as large in size.

“Encouragement should be taken from the fact that the number of lettings remains fairly high and that many smaller businesses are setting up operations within Glasgow. Undoubtedly, the city’s offering of a highly skilled and educated workforce, paired with modern, affordable workspace that suits the needs of today’s office occupiers, continues to attract new entrants and investment into the city.

“We are entering an interesting time in the Glasgow office market with Grade A supply continuing to decrease and demand for best-in-class space remaining. Occupiers understand the importance of having not only high-quality office space, but space that offers their staff, and their business, the focus on ESG that is being demanded at board level.”

Edinburgh

In Edinburgh, Q2 2023 saw 174,458 sq ft of office space taken up, a 29% increase over the Q2 average. This brought the total take-up for the year in Edinburgh to 298,398 sq ft.

Significant deals included the sub-letting of 28,000 sq ft of space at 2 Freer Street to Analogue Devices. Global sports betting, gaming and entertainment provider Flutter secured the entire 59,000 sq ft building in the Fountainbridge area in 2021, however, never occupied the full building.

Another significant transaction was the pre-letting of 20/21 Charlotte Square to Hampden and Co, the private bank secured the double townhouse spanning 9,322 sq ft.

During the second quarter, there was a total of 52 transactions, bringing the year’s total number of deals to 90. As with Glasgow, the majority of transactions occurred in the sub 5,000 sq ft market in both the city centre and out-of-town areas, totalling 42 deals.

While there was a high number of new letting transactions, re-gears also played a significant role in shaping the office market, accounting for 62,280 sq ft. This indicates that due to limited supply, occupiers are choosing to stay in their current locations.

The serviced office market in Edinburgh continues to operate at nearly full occupancy, particularly for top-tier offerings. As a demonstration of that, serviced office provider Cubo secured its first venture in Scotland in Q2 with a 14,500 sq ft letting at 40 Princes Street on a 15-year straight lease.

Top-tier spaces, particularly Grade A office spaces, accounted for nearly 40% of transactions in Q2, amounting to 73,576 sq ft, while the city’s overall office space supply increased to 1.75 million sq ft.

However, the city’s new Grade A office supply, decreased over the quarter, reflecting strong demand for high-quality spaces. Prime rents are also on the rise, currently at £43 per sq ft, with further growth expected in H2 2023.

Daryl Baxter from CBRE in Edinburgh said: “The flight to quality has been heightened in Edinburgh by sharply diminishing supply and a limited pipeline. With occupiers increasingly focused on employee satisfaction and how the space contributes to their environmental targets, it’s the best buildings that have attracted the strongest interest with reduced focus on rent.

“Occupiers of scale know that to secure the best space they have to move quickly and early. Another factor placing upward pressure on new-build rents is rising build costs which will undoubtedly have an impact across the development pipeline in every market.”

Aberdeen

Aberdeen’s office market experienced a modest uptick, with 54,584 sq ft taken up in Q2 2023, bringing the H1 total to 108,593 sq ft. The city saw a 5% decrease in total available office space, now at 2,516,097 sq ft, of which only 8% is Grade A.

The largest deal of the quarter saw energy services company Genesis relocating its office headquarters from an out-of-town office in Westhill to 26 Albyn Place in the west end of the city. The 14,100 sq ft office has been extensively refurbished by landlord Tilestamp achieving an EPC A rating in the process.

Following the trend, the majority of transactions appeared in the sub 5,000 sq ft market.

Amy Tyler, associate director at CBRE in Aberdeen, said: “We’ve witnessed a relatively subdued start to 2023, however we’re anticipating some larger lettings in the second half of the year.

“Albyn Place has experienced a renaissance in 2023 with Genesis joining Rosen and MODS Management who have also recently relocated to the street, all to traditional office buildings which have benefitted from significant renovation, demonstrating there is occupier demand if landlords are prepared to invest in high quality refurbishment of prime west end buildings.”