finance

Grade A shortage to sustain office market, says property report



A shortage of Grade A stock will help Scotland’s office property market to hold up in the face of coronavirus, according to estate agency JLL.

The firm says tenants may change the way they use space to adapt to the new circumstances but that demand for offices shows no sign of falling drastically.

It also insists there will be no shortage of investors ready to plough cash into commercial property in Edinburgh and Glasgow due to relatively high yields compared with many cities in Europe.

JLL research indicates a stable vacancy rate of 3% in Edinburgh and 4.4% in Glasgow, with both cities experiencing a “keen lack of Grade A stock and low levels of ongoing speculative construction.

Cameron Stott, lead director in Edinburgh at JLL, said: “Positive sentiment is returning to both Edinburgh and Glasgow’s leasing markets. Large occupiers seeking pre-lets, often with long lead times, continue to actively pursue space and new enquiries are being launched with virtual viewings taking place.

“We anticipate that a number of occupiers will adapt their requirements, in line with the changes we foresee taking place around the office layout, and that transactions will take longer but the key office markets in Scotland are moving forward.”

JLL says the trends towards collaboration, innovation, mentoring and team building are difficult to achieve working remotely.

The almost total evaporation of property deals during the early weeks of the pandemic in Europe resulted in valuation issues and the suspension of trading in some listed real estate investment trusts.

But JLL predicted that investors will become less defensive and that offices will be changing hands by the end of the year.

Alasdair Humphery, head of Scotland at JLL, said: “Scottish real estate will retain its long term appeal and we expect conditions to improve towards the end of the year and into 2021.

“The significant yield compression seen in some parts of Europe has created a notable gap between these and UK cities and has caused many European and global investors look to cities like Edinburgh and Glasgow in the search for yield.

“Covid-19 has clearly led to investors adopting a more cautious approach and the inability to travel has delayed decisions, but we expect Scotland to retain its far-reaching appeal to those seeking attractive returns.”



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