Rents rise as Scottish business parks take-up falls

Peter Fraser, associate director at Bilfinger GVA, points out that with the arrival of the tram there is now a high percentage of unmet demand for space at Edinburgh Park, Scotland’s main out-of-town business park.

He said: “Following some substantial activity over the past few months, the market has moved from a position of oversupply in West Edinburgh to one of very limited choice for occupiers with just over 50,000 sq ft actively being marketed at Edinburgh Park. Parabola’s plans for the remaining development land is principally focussed on residential so it’s unlikely new buildings will be delivered, especially on a speculative basis, because the rents required to support construction are significantly higher than those currently being achieved at the Park. That said, there are a handful of larger unsatisfied business park requirements (40,000 – 100,000 sq ft) and as a consequence of this shift in the supply verses demand dynamics, we are seeing rental growth across the out-of-town market.”

In Glasgow H2 take-up was characterised by a number of smaller deals but was down on expectations as a couple of larger transactions slipped into 2016.

For example the West of Scotland University remains under offer at Eco Campus and Hamilton International Business Park is looking to secure around 250,000 sq ft subject to planning.

Demand for larger requirements of between 20,000 and 50,000 sq ft, from the likes of Virgin Money and Balfour Beatty, also suggest a potential resurgence in occupier demand.

Across the UK the picture was more mixed with the South West and Wales performing best against the five-year six-monthly average, at 63 per cent above, followed by the North West at 28 per cent and the North East and Yorkshire at 16 per cent. The South East and East, which on average makes up a third of all activity, was 30% below its five-year average. The Midlands and Scotland, the next strongest performers based on past take-up, were also over 20% below average.

Construction activity in the market has fallen significantly and almost halved from the recent high of two million sq ft 12 months ago (compared against 4.5 million sq ft in 2009), falling to just over one million sq ft, of which 44 per cent is speculative and virtually all concentrated in the South East. A number of large schemes have completed since Bilfinger GVA’s Autumn 2015 Business Parks report including 215,000 sq ft at City Park, Aberdeen.

Last year, investment in UK business parks was the highest it has been since 2006; amounting to £2.5 billion, up from £2.2 billion in 2014. Overseas investors accounted for 30 per cent of all transactions, while UK property companies and institutional investors both maintained a strong presence, accounting for around 25 per cent of value each.

Mark Beaumont, national head of investment at Bilfinger GVA, says the continued interest remains focused on established business park locations with proven occupational markets such as airports.

“This year, rental growth, rather than yield shift, will be the main contributor to performance. However, while the pace of downward yield movement has slowed, there is the potential for further movement, particularly in the secondary markets with a return of around 7 per cent for 2016 as a whole forecast.”