How Recent History has Shaped Commercial Property in Edinburgh and Glasgow
Published by Knight Frank Newcastle on 26th May 2020 -
Over the years, there have been a lot of comparisons made between Scotland’s two largest cities. From a business perspective, Edinburgh has traditionally been considered the heart of Scotland’s financial and professional services industries, while Glasgow’s industrial heritage is world-renowned.
Their respective histories – economic and social – along with recent popularity among visitors have shaped both cities’ property; most notably in terms of architecture, but also their office market dynamics.
Constraints on the capital
Edinburgh’s compact city centre is steeped in history, leading to it being inscribed as a UNESCO World Heritage site in 1996. With that status comes various protections, designed to preserve what makes the city unique – and rightly so.
However, the safeguards also mean that Edinburgh has more listed buildings, placing limits on their use and necessitating a more stringent planning regime. That has led to a swathe of category B conversions to accommodate the demands on the city’s property. Combined, it means there are only a few new sites under development: The Haymarket, a gap site in The Exchange, and Capital Square.
By contrast, Glasgow’s city centre is more spaced out, spreading from High Street in the east to the west ends of St Vincent Street and Bothwell Street, and from the Broomielaw up to Sauchiehall Street.
There’s a real mix of new buildings next to older blocks or gap sites, which underlines the development potential in the city – there is greater scope for new space. That is perhaps reflected by the number of cranes currently in the Glasgow skyline with projects underway at 177 Bothwell Street and the new Barclays campus, to name a couple.
Tourism’s double-edged sword
Edinburgh has long been a favourite destination of tourists. While the full impact of Covid-19 on the travel and leisure sectors is yet to be fully understood, over the long-term Scotland’s capital will likely maintain its status.
Over the past decade, tourism has proven a double-edged sword for Edinburgh. The population rose 12.5% in the ten years to 2017 and visitor numbers reached 4.26 million, according to the City of Edinburgh Council.
The city’s property use has had to change significantly to accommodate these extra visitors and residents. Last year, for example, our Edinburgh 2019 Report found that around 720,000 sq. ft. of Grade B office space had been converted through planning for change of use. Little new space has been developed to replace the office stock that has been lost and that has inevitable consequences for occupiers and landlords alike.
Reflecting this trend, there is currently more than 1.4 million sq. ft. of space under construction in Glasgow compared to 370,000 sq. ft. in Edinburgh. That said, around 85% of the Glasgow pipeline is pre-let – most notably Virgin Money at 177 Bothwell Street, JP Morgan on Argyle Street, and Barclays at its Broomielaw campus.
The availability of reasonably large sites is one of the reasons Glasgow has been able to absorb such large commitments from corporate occupiers. However, another is the reasonable supply of Grade B space for office occupiers to fall back on in the secondary market, which has diminished in Edinburgh.
The consequence for rents
Rents are highly influenced by supply-demand dynamics: provided there is an imbalance between the two, rents should rise. Of all the distinctions between the two cities, the fallback option of Grade B space in Glasgow has perhaps made the greatest difference in recent years from a commercial rent perspective.
In Edinburgh, we’ve seen that happen over the past few years, with prime headline rents reaching £36.50 per sq. ft. at several locations – namely in and around the Exchange District. Glasgow’s prime headline rents are not far behind, at around £34 per sq. ft. – but this is still equivalent to a year or two in the typical cycle.
For occupiers, in Edinburgh businesses can expect to pay nearer prime rents for most spaces above 5,000 sq. ft. In Glasgow, there may be more choice at a slightly lower cost – albeit, occupiers are having to act quickly to secure the best space.
Both cities have been remarkably robust in the face of many recent challenges – between Brexit, the independence referendum and many other developments since 2008. Covid-19 may be the toughest challenge of them all, but Glasgow and Edinburgh have weathered storms in the past and their property sectors have remained intact in their different ways. Recent history suggests they have every chance of doing so again.