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October th

VIEWS: 12 PAGES: 20

									October/10:67th
       Scottish Property Review
“Demand for office property has edged upwards
 during 2010. The industrial market is performing
 well, although occupier demand is mainly latent
 for larger properties. The retail sector continues
 to be weak except for superstores and new
 shopping centres.
Economic growth has resumed but confidence
is affected by public spending cuts and bank funding
constraints. Despite opportunities emerging
as markets exit recession, Scotland's broken
development sector is largely unable to respond.
The investment market has polarised and maintains
its focus upon prime opportunities in the expectation
that occupational markets and capital values have
finally re-connected."

                                DR MARK ROBERTSON,
                                PARTNER, HEAD OF CONSULTING
    Economy
       & Planning
     Economy
                                                     Job Losses
     Economic growth in Scotland stalled again
                                                     Scotland’s local authorities expect to cut an estimated 10,000 jobs over the next few years
     at the beginning of 2010. While recovery
     is expected to continue only modest             400 jobs are to be lost with the closure of Direct Line’s insurance business at Atlantic
     levels of growth are anticipated. Public        Quay in Glasgow
     sector spending cuts may further                Standard Life is cutting 500 positions in Scotland over the next year, the large majority
     dampen growth, particularly in locations        (480) will be from Edinburgh
     where public sector employment                  The closure of two printworks in Perth has led to the loss of around 90 jobs – Woods
     is disproportionately high.                     of Perth (51 jobs) and Williams Lea (40 jobs)

    • Scottish GDP remained at the same level        Around 180 positions were lost when games company Realtime Worlds in Dundee went
                                                     into administration
      between the fourth quarter of 2009 and
      the first quarter of 2010. This contributed    Job Gains
      to an annual fall of 3.5%. During the first    Virgin Money plans to base its operations centre in Edinburgh with the creation of an
      quarter of 2010 output rose in the             initial 200 jobs
      construction sector (2.8%), fell in the
                                                     Barclays Bank is expanding its presence in Glasgow through the creation of 600 new jobs
      service sector (0.2%), and remained
      unchanged in the production sector.            Technology firm Hewlett Packard is setting up an IT service hub at its headquarters
                                                     in Erskine, Renfrewshire with the creation of 700 new positions
    • The Consensus forecast for UK economic         Waitrose plans further expansion in Scotland with the opening of new stores. More
      growth published by HM Treasury predicts       than 200 new jobs will be created when it opens a supermarket in Greenlaw Village,
      growth of 1.6% during 2010 and 1.8% for        Newton Mearns
      2011. For Scotland, Fraser of Allander         130 jobs are to be created by ScotRail with the opening of the new Airdrie-Bathgate
      Institute’s central forecasts are for 0.7%     rail link
      in 2010, followed by stronger growth of
                                                     Nisa-Today is opening a new food distribution depot in Livingston during late 2010,
      1.1% in 2011.                                  leading to the creation of 100 new jobs

    • The Scottish unemployment claimant
      count was 4.9% at August 2010. This was       • Companies House reports a total of 654         • The table above lists announcements
      unchanged from July and 0.2 percentage          business liquidations in Scotland in the six     of major job losses and gains in Scotland
      points higher than August 2009. The             months from March 2010 (5.4% of the UK           over the past six months. The two most
      broader ILO measure of unemployment             total). In the previous six months 520           notable sectors are financial services
      rose to 8.9% for the quarter May to July        (4.2% of the UK total) business failures         which reports significant job gains and
      2010, an increase of 1.8% over the year.        were recorded.                                   losses, and the public sector where
                                                                                                       spending cuts are expected to take
    • The lowest claimant count unemployment        • Retail sales in Scotland were 0.1% higher        effect from 2011.
      rate is recorded for the Shetland Islands       on a like-for-like basis over the 12 months
      and Orkney Islands (both 1.5%), while           to August 2010 (Scottish Retail                 Planning
      the highest rate is recorded in Glasgow         Consortium/KPMG). Further comment on            After more than a year of working with
      City (9.4%).                                    the retail sector is provided on page 12.       Scotland’s new planning system, the
                                                                                                      impact of the Planning etc (Scotland) Act,
    • The Committee of Scottish Clearing            • According to the International Petroleum
                                                                                                      and the panoply of supporting advice and
      Bankers confirms the number of new              Monthly, UK average daily oil production
                                                                                                      legislation, is now apparent. New ways
      business accounts established during the        preliminary estimates in the six months to
                                                                                                      of working are emerging and strategies
      first half of 2010 totalled 8,381. This was     June 2010 indicate a decline in output of
                                                                                                      are being tailored to fit this new reality.
      down by 2% on the same period in 2009.          7% when compared with the six months
      The largest share of new businesses             to June 2009.
      (2,525 or 30%) was in the real estate,
      renting and other business sector.



2   RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010
It has not been an easy settling in period.     In Aberdeenshire the infrastructure providers    Planning Fees
The introduction of the new system              established a group (Future Infrastructure       The scale of planning fees is becoming
coincided with the UK recession and a           Requirements for Services or FIRS) to            controversial as Scottish local authorities
collapse in new development. Serious            assess the infrastructure required to            seek new ways of raising money to pay
challenges to the development market            address the spatial strategy of the new          for the planning service they provide and
arrived just as changes to familiar             Local Development Plan. However, the key         the volume of applications declines. Since
processes were introduced.                      question of how this infrastructure will be      changes to the way in which fees are
                                                funded in practice, particularly where it is     calculated in England, huge discrepancies
Development Hierarchy                           required up front, remains unanswered.           have emerged between what a Scottish
Overly-prescriptive interpretations of                                                           and an English council would receive for
the new development hierarchy are still         Alternative approaches to infrastructure
                                                                                                 processing applications of a similar scale.
causing problems. For example, within           funding are now emerging. The Scottish
                                                                                                 The cap for planning fees south of the
designated employment areas proposals           Government has backed the business case
                                                                                                 border is £250,000, while the most that
for employment uses that meet one of the        for the use of Tax Increment Financing
                                                                                                 can be paid in Scotland is £15,950.
criteria for commercial development (e.g.       (TIF) at Edinburgh Waterfront. Business
site of 2 hectares) but are under 10,000        cases for using this mechanism - which           A study into the issue is currently underway
sq.m. are being classified as major             allows Councils to borrow against                by the Scottish Government and the
developments. Undertaking a 12 week             anticipated increases in non-domestic            consultation period is coming to a close.
pre-application consultation process in         rates - at Ravenscraig and Buchanan              At a time when those involved in the
these situations will add little value to the   Galleries in Glasgow are also to be              development sector are extremely cost
development process. This approach, taken       submitted to the Scottish Government.            sensitive, this may be a highly controversial
by some Councils, is undermining a                                                               issue going into 2011.
                                                Other funding models are likely to emerge
procedure that was intended to ensure a
                                                as local authorities seek new ways to            Preparation of Local Development Plans
swifter application process. The Scottish
                                                ensure their ambitions for development can
Government is investigating a possible                                                           Local authorities are starting to make
                                                be fulfilled in the absence of – or at least
rewording of the pre-application                                                                 progress on their new Local Development
                                                with much less generous – developer
consultation period to “up to 12 weeks”.                                                         Plans (LDPs). Aberdeenshire and Aberdeen
                                                contributions.
                                                                                                 City have made good progress and both their
Section 75 Agreements & Circular 1/2010                                                          Proposed Plans will be examined next year.
                                                Future of Strategic Sites
The system whereby the private sector paid
                                                Due to these difficulties in providing upfront   Both Stirling and Falkirk Council have been
for public community infrastructure upfront
                                                infrastructure, developers have moved away       able to move forward as there is no
as part of Section 75 agreements worked
                                                from strategic sites that require high levels    Strategic Development Plan covering their
in times of boom. It is not sustainable
                                                of investment in schools, drainage and the       area. Their Proposed Plans will be published
in the long run where downturns are
                                                transport network. Instead, there has            in 2011 and 2012 respectively.
inevitable. However, the fact that this
                                                been a significant increase in the number
became the orthodox approach has proven
                                                of smaller applications for bite-sized           Across the city regions of Edinburgh
damaging as there was no alternative
                                                developments being pursued, particularly         and Glasgow, progress with LDPs will
method for delivering these key parts of
                                                by housebuilders. This is likely to have major   begin as the Strategic Development
successful large scale development when
                                                implications for the aspirations of many         Plans emerge.
the downturn came.
                                                emerging Strategic Development Plans and
Unfortunately, many planning authorities        Local Development Plans seeking to maintain
persist in seeking unrealistically large        support for large development sites. If
developer contributions. This experience        strategic sites are not going to be able
is reflected in emerging Local Development      to deliver housing numbers in the anticipated
Plans where the infrastructure requirements     timeframe, an alternative strategy centred
expected of major developments may              on smaller, effective sites should be allowed
simply make many projects unviable.             to emerge.




                                                                                         RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010          3
    Office
          Property
    Uncertainty regarding the extent of the        Activity at the smaller end of the Glasgow       The trick, as ever, is timing. Despite the
    impact of the “austerity measures” facing      office market has also picked up over the        economic uncertainty, underlying demand
    the public sector casts a shadow over the      last six months. Local companies have            from indigenous companies and new
    office market throughout the UK, just as       sought to take advantage of their                activity from larger corporates as the
    the market tries to pick itself up after       forthcoming break options or lease expiries      economy recovers presents developers
    recession.                                     to “trade up” to higher quality premises         with the opportunity of taking advantage
                                                   on the back of very attractive terms being       of the gap in the new-build market going
    However, the Glasgow market continues          offered by developers and landlords in this      forward.
    to show encouraging resilience and is          highly competitive sector of the market.
    performing well alongside comparator cities.                                                    The pending shortage of supply within the
                                                   This activity, combined with general market      Grade A sector masks a modest increase
    The main feature of the market is the lack     churn, has resulted in total take-up over the    of 6% in total availability of office premises
    of any further new-build development. The      last six months of some 42,405 sq.m. This        in the wider city area over the last six
    supply of new Grade A space in the city is     is an increase of 75% over the previous six      months to 337,661 sq.m. The city-wide
    being further eroded by healthy take-up,       month period, producing a 12 month total         vacancy rate is 18%, and city centre
    with several anticipated lettings and          of 66,676 sq.m.                                  vacancy stands at 15%.
    acquisitions having concluded over the
    last six months.                               The recent burst of activity from large scale    Prime office rentals in the city centre
                                                   occupiers was anticipated, as a number           peaked at around £305 per sq.m. This level
    Maclay Murray & Spens and Ernst & Young        of these had been in the market for some         may still be achieved for the best space on
    have taken 3,607 sq.m. and 1,906 sq.m.         time. While it is unlikely that this level of    larger floorplates where there is relatively
    respectively at G1, George Square, with        take-up can be sustained over the short          little supply. Prime rentals for the wider
    strong interest rumoured in the remaining      term, a range of enquiries have short-listed     Grade A are in the range £269 - £291 per
    3,715 sq.m. NFU Mutual purchased Clarion,      preferred properties and will proceed to         sq.m. Discounted rents remain available
    Wellington Street (7,154 sq.m.) for owner      take space over the next 6 - 12 months,          for buildings that face wider competition.
    occupation and will occupy the majority in     thereby further reducing availability of         Rents for top quality refurbished space are
    the renamed Centenary House, releasing         Grade A and B stock. There are presently         within the range £185 - £231 per sq.m. but
    c.2,183 sq.m. back to the market for lease.    only four new-build properties that can          will be under pressure from an increasing
    Strathclyde Pension Fund has taken space       offer floorplates over 929 sq.m. and only        supply of good quality second hand space.
    at Capella, York Street (1,034 sq.m.). CB      two of these, G1, George Square and Cuprum,      Incentive levels remain very aggressive,
    Richard Ellis has taken 560 sq.m. at One       can offer floorplates over 1,394 sq.m.           however, reducing supply will drive these
    Waterloo Street and there is strong rumour                                                      down for the best space over the next
    of two floors under offer at 2 West            Choice is therefore becoming more limited,       6 - 12 months.
    Regent Street.                                 particularly for larger floorplates. Occupiers
                                                   who need space are likely to have to             There has been limited letting activity on
    There has also been increased activity         consider second hand accommodation               Glasgow's peripheral business parks. Small
    in the refurbished and quality end of the      released to the market. Building owners will     suites have been taken at Watermark,
    second hand market, with Towergate             also be looking at refurbishment of whole        Govan; Junction 24, Govan; Craighall,
    Insurance taking space at 150 St Vincent       buildings and vacant space within buildings      Port Dundas; and Centurion Business Park,
    Street (1,009 sq.m.), RSA at BT's Alexander    to fill the gap left by the lack of new-build    Kinning Park. The Arc at Hillington has
    Bain House, Broomielaw (2,798 sq.m.),          development over the next two to three           secured a number of lettings including FES
    Cunningham Lindsey (1,970 sq.m.) and Ove       years.                                           FM and NES UK. The Hub at Pacific Quay
    Arup (716 sq.m.) at 225 Bath Street, and                                                        is now over 55% let, having attracted a
    Hudsons Global Resources at 130 St Vincent                                                      further six lettings to small media related
    Street (950 sq.m.).                                                                             companies on flexible leases.




4   RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010
Similarly, there has been relatively little    Take-up of offices in Edinburgh has                Within the Grade A office market, the
activity on out-of-town business parks         generally reflected the slow down of the           majority of the top floors have now been
around Glasgow. Westpoint Business Park        occupational market. Many organisations            let. There are a number of deals currently
near Glasgow Airport has secured lettings      are still seeking to re-gear existing              in legal hands and a good level of interest
to Songa Shipmanagement (485 sq.m.)            commitments when lease expiries occur,             at other available buildings, offering the
and Geodis Wilson (243 sq.m.), and Ceridian    or delay their planned relocation until            prospect that more transactions will conclude
Centrefile has completed a pre-let of          market conditions have settled.                    before the year end.
Titanium 2 at Braehead (3,250 sq.m.).
To the east, at Maxim Business Park,           Underlying occupational demand in                  Total Edinburgh office supply at September
Eurocentral, Regus has completed the           Edinburgh is still comparatively weak,             2010 was 269,452 sq.m., a slight increase
fit-out of Maxim 1 and reports over 60%        particularly for larger offices. However,          since March 2010. Within the city centre
occupation since opening in summer 2010,       live tenant requirements have increased            165,717 sq.m. of office space is available, of
while Currie & Brown has taken space in        to a total of c. 18,580 sq.m.                      which 61,000 sq.m. is Grade A accommodation
Maxim 3 (736 sq.m.).                                                                              offering floorplates larger than 929 sq.m.
                                               Outwith the city centre, demand is limited
Rents for good quality, non-cooled business    although there have been larger lettings at        Waverley Gate at the east end of the city
park space around Glasgow are £140 - £166      Edinburgh Park to JDSU at 7 Lochside View          still remains substantially unoccupied with
per sq.m. and comfort cooled space is £166     (1,169 sq.m.) and to RSPB at Miller House,         c. 9,290 sq.m. available. The building has
- £183 per sq.m. (inclusive of car parking).   Lochside Avenue (1,042 sq.m.).                     however secured lettings to NHS Lothian
                                                                                                  and H&M while Creative Scotland has
Glasgow's Urban Regeneration Company at        Smaller open-plan offices are again the            space under offer following acquisition
Clyde Gateway continues to make progress       most active market as landlords offer              by Highcross and a subsequent re-pricing
with development activity at Brook Street      flexible, competitive packages and reduced         strategy.
to provide 6,000 sq.m. for Glasgow             rentals. This, coupled with a shortage of
Community and Safety Services, plus 1,500      good quality open-plan refurbished suites,         There is currently a good level of interest
sq.m. within each of two business centres at   has led to general eradication of available        within the Cube on Leith Street and also at
Rutherglen and Bridgeton Cross. Clyde          stock. Deals have been completed to Legal-E        Tanfield which recently concluded 1,114 sq.m.
Gateway is also actively offering design and   and FPSG (101 George Street), Nucleus              with the thetrainline.com; a further 1,672
build and pre-let/sale options on a variety    Finance (Stewart House on Thistle Street),         sq.m. is currently under offer and there is
of sites. Land assembly continues and the      SeeByte (Orchard Brae House), Valad                interest in other parts of the building.
M74 completion (which is ahead of              (Exchange Place), and DUCO Architects
                                               (Hanover Street) to name a few.                    At present, there are no new office
schedule) allied to the East End
                                                                                                  developments in Edinburgh scheduled
Regeneration route linking the M74 to the
                                               Crucially for market confidence, there has         for completion prior to 2012. The City of
M8 will present a wide range of cross-sector
                                               been a number of city centre transactions          Edinburgh Council’s HI development in
development options.
                                               within good quality Grade A or Grade B             The Exchange is currently onsite and will
Edinburgh's six month take-up of offices       accommodation. Accommodation which                 provide 17,279 sq.m. of office accommodation
to September 2010 was 29,770 sq.m. Over        is correctly priced by landlords who offer         during 2013.
the 12 month period take-up was 65,951         flexible transactions and incentives
                                               to reflect covenant have been concluded            Refurbishment of accommodation will
sq.m. The six month take-up is a decrease
                                               to the following: H&M at Waverley Gate (1,404      become more prevalent in the marketplace
from our previously reported figure and
                                               sq.m.); Aquamarine Power and Dialogue              as the best new office space is gradually
the annual figure is still 15% below the
                                               Semiconductor within the The Walk (713             taken up but is not replaced by new-build.
10-year average for Edinburgh.
                                               sq.m. and 680 sq.m. respectively); Chest,          There is an anticipated tightening in the
Over the last six months within the city       Heart & Stroke at Haymarket Terrace (730           market for good quality options available
centre 23,102 sq.m. was transacted in 109      sq.m.); and Rathbone within 28 St Andrew           to occupiers who have break options or
office deals indicating an average deal size   Square (771 sq.m.).                                lease expiries up to 2013.
of 212 sq.m. Outside the city centre 6,669
sq.m. was transacted in 27 office deals at
an average size of 247 sq.m.

                                                                                           RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010          5
    In the development land market, Caltongate       certain transactions. Prime west Edinburgh      Supply has dropped marginally by 7% over
    has had two closing dates for the development    rents are £193 per sq.m. for good quality       the six months to stand at 97,500 sq.m.
    opportunity and an announcement is now           space within Edinburgh Park although
    anticipated. Freer Street is currently being     offices in less well located buildings have     These figures are against the backdrop
    handled by West Register and is available        transacted at c. £81 per sq.m.                  of a steady oil price which, at the time of
    on the open market. The Tiger Developments                                                       writing, is $83 per barrel, but has never
    project at Haymarket was previously              The supply of Grade A office space              been below $70 per barrel in the six month
    refused planning consent. A new planning         is expected to tighten with the best space      period.
    application proposing a mixed development        within most new buildings being, or
                                                     about to be, taken up by current market         In general, office rental levels in Aberdeen
    of hotel, offices and underground parking
                                                     requirements. While rental growth is not        have again held up and incentive packages
    is currently experiencing issues with the
                                                     anticipated, incentive levels should decrease   have remained constant as, unlike many
    various consultation parties.
                                                     as supply falls.                                areas, the market has not been suffering
    Prime office rents in central Edinburgh                                                          from oversupply. In fact, it may well be
    are £290 per sq.m. There continues to be a       Take-up figures have again taken a step in      heading towards a severe undersupply as
    downward pressure on rents within the city       the right direction in the Aberdeen office      the oil industry continues to strengthen
    centre, particularly in Grade B properties.      market. Figures are up by 13% for the six       and some of the current requirements
    Grade A options maintain headline rents          month period to September 2010 at 22,700        within the marketplace come to fruition.
    but are offering incentives of at least          sq.m. This gives an annual figure of 42,870     For example, Knight Property Group has
    36 months rent free for a 15-year term for       sq.m., still 11% below the 10-year average.     let the last of its speculative developments
                                                                                                     at Westpoint Business Park in Westhill to
                                                                                                     TAQA Bratani totalling approximately
                                                                                                     3,000 sq.m. over two pavilions.
    Larger office deals in Scotland over the past six months include:
                                                                                                     In Aberdeen’s West End, Neptune has taken
     Address                                        Size          Occupier                           a lease of 650 sq.m. at 40 Queen’s Road
     Clarion, Wellington Street, Glasgow            7,154 sq.m.   NFU Mutual                         at a headline rent of £323 per sq.m.,
                                                                                                     proving that the market remains strong
     G1, George Square, Glasgow                     1,906 sq.m. Ernst & Young
                                                                                                     for the right product in the right location.
     GI, George Square, Glasgow                     3,607 sq.m. Maclay Murray & Spens                With less than 6,500 sq.m. currently
                                                                                                     available in the West End on the back of
     Alexander Bain House, York St, Glasgow         2,798 sq.m. Royal and Sun Alliance
                                                                                                     what has been a relatively quiet market,
     225 Bath Street, Glasgow                       716 sq.m.     Ove Arup                           it is likely that supply in this market
     Capella, York Street, Glasgow                  1,034 sq.m. Strathclyde Pension Fund             sub-sector will become constrained in the
                                                                                                     not too distant future.
     150 St Vincent Street, Glasgow                 1,009 sq.m. Towergate Insurance
                                                                                                     SI’s City Wharf at Shiprow is due for
     130 St Vincent Street, Glasgow                 950 sq.m.     Hudson Global Resources
                                                                                                     completion October 2010 and, of the 2,500
     Waverley Gate, Waterloo Place, Edinburgh       1,404 sq.m. H&M                                  sq.m. of office accommodation, over 40%
     28 St Andrew Square, Edinburgh                 771 sq.m.     Rathbone                           has been pre-let to Maersk.

     7 Lochside View,                               1,169 sq.m.   JDSU                               At Hazeldene’s IQ on Justice Mill Lane,
     Edinburgh Park, Edinburgh                                                                       a speculative development nearing
     Miller House, Lochside Avenue,                 1,042 sq.m. RSPB                                 completion, there has been strong interest
     Edinburgh Park, Edinburgh                                                                       in all 11,600 sq.m. although no deals have
                                                                                                     been concluded yet.
     Tanfield, Edinburgh                            1,126 sq.m.   thetrainline.com

     City Wharf, Shiprow, Aberdeen                  1,085 sq.m. Maersk                               Gladman Developments is on site with
                                                                                                     Phase 2 of Abercrombie Court at Westhill
     40 Queens Road, Aberdeen                       650 sq.m.     Neptune                            where around 5,000 sq.m. is being built


6   RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010
over a number of smaller units. This is the             Office Supply and Take-up – Glasgow
only speculative new-build office scheme to
                                                                Supply sq.m (000’s)            Take-up sq.m (000’s)
have commenced in Aberdeen during 2010.
                                                 300

The Aberdeen office market has seen an
increase in the number of genuine                250

requirements recently. With a steady stream
of contract awards in the oil industry on the    200

horizon, the trend appears to be towards
a stronger occupational market.                  150


The level of office take-up in Dundee at the     100
start of the year was very slow but has
improved slightly, and looks set to continue      50
at a steady level, particularly for smaller
open plan office suites between 93 – 232 sq.m.     0
                                                       Sep 00      Sep 01   Sep 02    Sep 03      Sep 04   Sep 05     Sep 06   Sep 07   Sep 08   Sep 09   Sep 10
Within the last six months three units have
been let at City Quay to Search                         Office Supply and Take-up – Edinburgh
Consultancy (129 sq.m.), City Quay Dental
                                                                Supply sq.m (000’s)            Take-up sq.m (000’s)
Clinic (149 sq.m.) and TLC Tiles (188 sq.m.),    300
and two further units (185 sq.m. & 232 sq.m.)
are currently under offer. Nearby, Shed 26,      250
Unit 35 Camperdown Street (187 sq.m.) has
been purchased by MTC Media.
                                                 200

At Dundee Technology Park, Unit 3 Luna
                                                 150
Place (229 sq.m.) has been let to CarieScan
at a rent of £109 per sq.m. There have been
                                                 100
several small transactions at Prospect
Business Centre including Integrated
                                                  50
Magnetic Systems (63 sq.m.), Kleos
Marketing (28 sq.m.), Fibrecity (47 sq.m.)
and Subsea Energy (67 sq.m.), at rents             0
                                                       Sep 00      Sep 01   Sep 02    Sep 03      Sep 04   Sep 05     Sep 06   Sep 07   Sep 08   Sep 09   Sep 10
ranging from £107 - £129 per sq.m.

The Dundee waterfront development,                      Office Supply and Take-up – Aberdeen
which will include a new Victoria and Albert                    Supply sq.m (000’s)            Take-up sq.m (000’s)
                                                 120
Museum, is likely to have a positive impact
on the city's office market.
                                                 100

In Inverness there have been several small       80
transactions, primarily in business park
locations. Independent Living Services           60
(Scotland) (117 sq.m.) and AVC (Europe)
                                                 40
(710 sq.m.) both took space at Cradlehall
Business Park. At Beechwood Business
                                                 20
Park, Waterman Transport & Development
(83 sq.m.) and Fujitsu (551 sq.m.) have           0
                                                       Sep 00      Sep 01   Sep 02    Sep 03     Sep 04    Sep 05     Sep 06   Sep 07   Sep 08   Sep 09   Sep 10
taken space.
                                                   Source: Ryden


                                                                                                      RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010               7
    Industrial
         Property
    Demand within the industrial market has             industrial market over the past 20 years        intention is to provide units targeting
    become increasingly polarised over the past         has seen a reduction in total supply and        requirements from 1,393 - 2,322 sq.m.
    six months. For smaller premises of below 929       the removal of older, outmoded stock for
    sq.m., demand and take-up have continued            alternative uses. Indeed, shortages remain      At Silverbank’s Glasgow Business Park,
    at encouraging levels. However there has            within the better locations for industrial      Glasgow Trade Park is complete, along with
    been a decline in the number of new active          property of most sizes.                         Parkway Point. Together these provide over
    requirements and few notable transactions                                                           9,290 sq.m. of small to medium sized
    for industrial space above this size.               It has been evident on a number of              industrial units. Transactions to date have
                                                        occasions that requirements have failed         been encouraging, with the trade park
    A review of transactions around Glasgow             to progress due to the lack of suitable         previously securing a pre-let of 1,858 sq.m.
    over the past six months reveals that nearly        property. Indeed, relatively few options        to Autoglass, followed by the leasing of an
    85% of take-up was for property smaller             exist for companies seeking modern,             additional 279 sq.m. to Toyota Material
    than 929 sq.m. It is not surprising that the        well configured space. There are signs of       Handling on a new 10-year FRI lease at £73
    focus of transactions should be at the              increasing developer interest in providing      per sq.m. At Parkway Point, five units are
    smaller end of the market as there will             industrial stock to fill this gap, although     now occupied ranging from 149 - 235 sq.m.
    always be a greater number of companies             securing funding remains a major obstacle.      Lettings have been at £75 per sq.m. and
    seeking space of this size.                         There is also a lack of suitable land           sales at £1,076 per sq.m.
                                                        available at a price supporting industrial
    However, this is normally balanced by               development.                                    At Inchinnan Business Park, Knapps
    activity involving medium to large sized                                                            Developments has completed a highly-
    organisations seeking larger space. At this         At Eurocentral, the Eurocentral Partnership     specified 1,613 sq.m. unit for the
    point in the market, a number of larger             is building out the remaining former            engineering sector, which has seen little
    deals have failed to progress as companies          Enterprise Zone plots ahead of the expiry       suitable product created in recent times.
    have reviewed strategies and either decided         of Golden Contract status in April 2011.
    to postpone matters or cancel the                   On Plot F, Zenith and Pinnacle are nearing      Within the City of Edinburgh there
    requirement. Nevertheless, there are some           completion and will provide 8,526 sq.m. and     continues to be a shortage of supply of
    very promising larger requirements where            6,205 sq.m. respectively of high quality        good quality industrial space against a
    discussions have been ongoing for some              distribution and production space. Plans are    backdrop of reasonable occupier demand,
    time. The next six months could be a period         also well advanced for the development of       particularly in the smaller unit sector.
    of much greater activity involving medium           the remainder of the plot, which will provide
                                                                                                        Some of the most significant activity in
    to large premises. It is hoped that Tesco’s         an additional 18,580 sq.m. Finally, Plot B
                                                                                                        the Edinburgh industrial market has taken
    lease to DHL of the 18,210 sq.m. chilled            West will be developed to provide up to
                                                                                                        place at the high profile Seafield Road
    facility at Livingston is the first of a number     2,787 sq.m. in a range of smaller units, the
                                                                                                        area on the north - east side of the city.
    of transactions in this category.                   first of this type of format at Eurocentral.
                                                                                                        Joint Properties let 1,357 sq.m. to Arnold
    Occupiers are pushing landlords for                 In the east of Glasgow, Clyde Gateway           Clark Automobiles at a rental equivalent to
    improved terms and greater leasehold                is bringing forward ‘Clyde Gateway East’.       £52 per sq.m. Arnold Clark then purchased
    flexibility, but overall industrial rental levels   This 14 hectare site on London Road             this and the two adjoining units, let to Tile
    and incentive packages are holding up. In           near Junction 1 of the M74 has been             Giant and Screwfix. Arnold Clark converted
    the recession of the early 1990s, there was         masterplanned to provide industrial and         Unit 23c into a new Renault car showroom
    a marked fall in rental levels and an               office accommodation in a business park         and their purchase of the terrace facilitated
    increase in incentive packages, as landlords        environment. Infrastructure works are well      the relocation of Screwfix (597 sq.m.) to
    offered increasingly competitive deals to           advanced and scheduled to complete within       The Royal London Seafield Trade Park
    secure income. However, there was an                the next few weeks. A first phase of            Scheme across the road at an annual rental
    over-supply of poor quality, cheap property         development will provide 6,500 sq.m. over       equivalent to £86 per sq.m.
    at that time. While secondary and tertiary          three buildings with a site start scheduled
    locations are under pressure and rentals            for early next year. Development will be via
    have fallen, the realignment of the                 a joint venture with a developer and the




8   RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010
Areas such as Leith, Loanhead and               Larger industrial deals in Scotland over the past six months include:
Peffermill continue to attract good
                                                 Address                                           Size              Occupier
occupier interest for smaller properties
under 500 sq.m.                                  Glasgow Trade Park                                1,858 sq.m.       Autoglass
                                                 Glasgow Business Park, Glasgow
The only significant letting on the west
                                                 Caputhall Road,                                   18,210 sq.m.      DHL
side of Edinburgh was at South Gyle, where       Deans Industrial Estate, Livingston
c. 978 sq.m. at 11 South Gyle Cresent has
                                                 Seafield Trade Park,                              597 sq.m.         Screwfix
been leased to an undisclosed tenant. The
                                                 Seafield Road, Edinburgh
City of Edinburgh Council has recently
                                                 32/33 Rutherford Road,                            1,858 sq.m.       A G Brown
marketed a development site at South Gyle;
                                                 Southfield Industrial Estate, Glenrothes
it is understood that a preferred developer
has been identified and speculative              Block 2 Fulton Lane,                              1,486 sq.m.       Long Lane Deliveries
                                                 Dunsinane Industrial Estate, Dundee
development will be considered.
                                                 Units F & G, Arran Road,                          1,076 sq.m.       Arnold Clark
Still within the Edinburgh city boundary,        North Muirton Industrial Estate, Perth                              Automobiles
at Newbridge, Northern Trust has
                                                 Unit 1, 18-20 Harbour Road, Inverness             378 sq.m.         AVC Wireless Networks
purchased a two hectare site from Murray
International Metals. Northern Trust intends
to develop the site speculatively for           The largest industrial deal to take place        There has also been a number of sizable
industrial use. This will be one of the few     in Livingston over the past few years,           industrial requirements emerging in
speculative schemes to be started in            as mentioned on p.8, is the letting of the       Dundee recently, particularly from trade
central Scotland in the coming months.          former Tesco distribution unit (18,210 sq.m.)    counter occupiers looking to relocate
                                                at Deans Industrial Estate to DHL on a           to modern premises. Four pre-lets are
In West Lothian the bulk of activity has        seven-year lease at £35 per sq.m.                reported as being close to conclusion
been focused in the Livingston area. At                                                          at James Keiller Estates’ new-build
Deans Industrial Estate, four deals totalling   Further north within the Fife area, lack of      industrial units at Dunsinane Avenue,
8,754 sq.m. have taken place: James Keiller     development has again meant that activity        Dunsinane Industrial Estate.
Estates sold a property at Nairn Road to        has been focused upon the second hand
EcoSteel (3,621 sq.m.) for owner occupation     market. Glenrothes has seen three lettings       Elsewhere in Dundee, Block 2 Fulton Road,
at a rate of c. £429 per sq.m.; IPIF has let    totalling c. 3,796 sq.m. to different tenants    Wester Gourdie Industrial Estate (1,486
two units of 888 sq.m. and 1,282 sq.m. at       including 1,858 sq.m. to A G Brown at            sq.m.) has been let to Long Lane Deliveries
rents in the region of £35 per sq.m.; and       Rutherford Road, Southfield Industrial Estate.   on a new 10-year lease at £32 per sq.m.,
a unit of 2,972 sq.m. was sold for owner                                                         and Units 3 & 4 Ainslie Street, West
occupation to Batt Cables at a rate of          The industrial property market in Dundee         Pitkerro Industrial Estate (386 sq.m.)
£257 per sq.m.                                  has seen relatively little activity over the     have been let to Apex Acoustics.
                                                past year with only 3,648 sq.m. let or sold
Also within Livingston, Denwolf Property        between August 2009 and July 2010.               At North Muirton Industrial Estate in
has leased 1,715 sq.m. of manufacturing         The level of take-up during the last six         Perth, Units F & G, Arran Business Park
space at a rent equivalent to £33 per sq.m.     months, however, has increased by 64%            (1,076 sq.m.) have been let to Arnold Clark
to J Hewitt & Sons.                             compared to the previous six months.             Automobiles, and Unit 1, Arran Road (1,394
                                                                                                 sq.m.) was let to Hermes Parcelnet at a rent
                                                                                                 of £54 per sq.m.




                                                                                          RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010        9
     The industrial market in Aberdeen has           Z3, Badentoy Park (GSS Developments);
     experienced a challenging six months,           Unit 3, Kirkhill Commercial Park (Knight
     despite the stability of the oil price at       Property Group); and Site 2, Raiths
     $70 - $80 per barrel or higher. Oil companies   Industrial Estate (Gilcomston Investments).
     in Aberdeen appear to be willing to move        The speculative development being
     into new larger premises, but increasingly      undertaken in Aberdeen is evidence that
     decisions are being made overseas.              developers/investors believe occupational
                                                     demand will improve in the next 6 - 12
     Industrial take-up in Aberdeen during the       months. In the last few months enquiries
     last six months totals 20,453 sq.m. in 26       have increased again, which is a positive
     transactions. This represents a decline in      sign that the market may be improving.
     floorspace take-up of 26% and a decline
     in number of transactions of 39%. Take-up       Good quality industrial space within the
     is down across all size ranges with the         prime Longman Industrial Estate, Inverness
     exception of properties larger than 1,858       is still proving popular, with rental levels
     sq.m. where take-up has actually increased      being maintained and minimal rent free
     by 161%. This can be explained by an            incentives being offered. Recent deals here
     increase in supply in this size range.          include AVC Wireless Networks (378 sq.m.),
     Industrial supply in Aberdeen has risen         Registrar General for Scotland (339 sq.m.),
     from 1 12,295 sq.m. to 128,143 sq.m. which      Fujitsu Services (378 sq.m), Morrison
     represents an increase of 14%.                  Construction (348 sq.m.), and Solution
                                                     X (139 sq.m.).
     Rental levels in Aberdeen have again
     been maintained for new-build industrial        At 57 Harbour Road, Sippcentre has
     units at £91.50 per sq.m. for warehouse         successfully let three out of five of its
     space, £183 per sq.m. for offices and           speculative new-build units at rents ranging
     £16 per sq.m. for concrete yards.               from £115 - £122 per sq.m. Unit 1 (45 sq.m.)
                                                     was let to G-Force Electrical, and Units
     As mentioned in previous Reviews,               4 & 5 (121 sq.m.) to Gilmour Sports.
     it is now a tenant’s market in Aberdeen
     as shorter-term leases are sought by
     occupiers and landlords offer incentives
     to commit tenants to leases. Average lease
     lengths are three to five years, while
     landlords for older industrial stock have
     to consider one to three year leases in
     order to gain some form of income.

     A number of developers have previously
     undertaken speculative developments
     within the 929 – 1,858 sq.m. size range
     which have been well received by the
     market. On the back of this evidence of
     occupational demand, further speculative
     industrial units have been built or are to
     be built in forthcoming months, namely:




10   RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010
        Industrial Supply and Take-up – West of Scotland

                Supply sq.m (000’s)            Take-up sq.m (000’s)
1600

1400

1200

1000

800

600

400

200

  0
       Aug 00    Aug 01    Aug 02     Aug 03     Aug 04    Aug 05     Aug 06   Aug 07   Aug 08   Aug 09    Aug 10




        Industrial Supply and Take-up – East of Scotland

                Supply sq.m (000’s)            Take-up sq.m (000’s)
1200


1000


800


600


400


200


  0
       Aug 00    Aug 01   Aug 02      Aug 03     Aug 04    Aug 05     Aug 06   Aug 07   Aug 08   Aug 09    Aug 10




        Industrial Supply and Take-up – North of Scotland

                Supply sq.m (000’s)            Take-up sq.m (000’s)
200



 150



 100



 50



  0
       Aug 00    Aug 01   Aug 02      Aug 03     Aug 04    Aug 05     Aug 06   Aug 07   Aug 08   Aug 09    Aug 10

  Source: SPN


                                                                                                          RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010   11
     Retail
          Property
     Occupier demand for retail premises             Glasgow’s city centre has seen some              Livingston’s The Centre has announced
     in most locations throughout Scotland           recent retail activity. At Buchanan Galleries,   lettings over the summer period including
     remains subdued. Development activity           lettings have been secured to Hollister,         units to JD Sports (626 sq.m.), Bank (543
     is curtailed by the lack of debt finance        Lipsey, The Fragrance House, Mango and           sq.m.) and Wilkinson (1,709 sq.m.) in the
     available within the property market.           Jones Bootmaker (434 sq.m.). Following           former Woolworths store, and Iceland (760
                                                     completion of the St Enoch Shopping              sq.m) in the former Next store. Primark plan
     Like-for-like sales increased by a marginal     Centre extension, new stores have been           to open a purpose-built store here during
     0.1% in Scotland. This was worse than           opened by Fossil (93 sq.m.), ModelZone,          2011. In addition, the Livingston Designer
     the rest of the UK over the 12 months to        Officers Club and Xile Clothing. Burger King     Outlet Centre has attracted Lacoste,
     August, where sales were 1.0% higher            has also opened here.                            Pavers Shoes, Subway and Lloyds No.1
     than in August 2009. Consumer confidence                                                         (a second site for J D Wetherspoon within
     is considered to be lower than the rest         Buchanan Street has secured a letting            the centre).
     of the UK with concerns that public sector      to Jack Wills at No 137 (former Bank
     job cuts in Scotland may lead shoppers          of Scotland) at a rent of £360,000 per           Aberdeen continues to enjoy retail activity
     and consumers to be more cautious about         annum on the basis of a 10-year term.            due to the positive economic background
     spending.                                       20-26 Buchanan Street (2,600 sq.m.) has          provided by a strong oil price. Recent
                                                     been let to Nike with a target opening of        transactions mainly involve the Union
     This is being demonstrated by the John          Easter 2011. Upon the acquisition of the         Square, Bon Accord and St Nicholas
     Lewis Partnership which announced that          former Borders unit, AllSaints continue to       Shopping Centres. Hammerson’s Union
     trading figures up to 21 August 2010 show       market their former premises on Buchanan         Square has achieved recent lettings to
     their department stores in Edinburgh,           Street following the administration of their     Gio-Goi (194 sq.m.), Internacionale (354
     Aberdeen and Glasgow are grouped within         sub-tenant, Ed Hardy.                            sq.m.), Fossil, The Perfume Shop, Jones
     the bottom five stores in the UK in respect                                                      Bootmaker, Pulp (195 sq.m.) and Sony
     of sales increase from 2009 to 2010.            Poundland has secured 1,858 sq.m. within         Centre (158 sq.m.), along with additions to
                                                     the former Woolworths on Argyle Street           the restaurant offer through Zizzi, Giraffe,
     Similarly the summer months were poor           at a rent of £375,000 per annum on a new         Wagamama and Prezzo. Following on from
     for food sales, although this has now picked    10-year lease, and is due to open for trade      the Bon Accord and St Nicholas £13 million
     up again.                                       before Christmas 2010. TK Maxx is due            refurbishment programme in 2009, the
                                                     to open its 6,500 sq.m. flagship store on        centre has added Swarovski (111 sq.m.),
     Positive sales growth to August for food
                                                     Argyle Street in November 2010.                  Jo Malone and Hobbs, while H&M is
     & drink together with health & beauty
     products reflected shoppers seeking                                                              planning to open a store (843 sq.m.) in 2011.
                                                     In Edinburgh plans are progressing for
     value being drawn to promotions and             the proposed redevelopment of St James           Dundee’s principal shopping centres are
     special offers. Homewares, DIY, furniture,      Shopping Centre, although a completion           Overgate and Wellgate, which are linked
     floor coverings, footwear and clothing          date is yet to be confirmed. Primark has         by the traditional prime High Street. Recent
     all recorded sales figures below the            commenced on-site with a 6,970 sq.m. store       additions in the Wellgate Shopping Centre
     previous year.                                  at 91-93 Princes Street. Other activity in       include Home Bargains (1,440sq.m.),
                                                     the city centre includes White Stuff’s new       Yeomans Outdoor Leisure (158 sq.m.)
     The out-of-town retail market shows some
                                                     store at 89 George Street (1,460 sq.m.),         and Poundmart (836 sq.m.). The proposed
     resilience in the value sector where Home
                                                     Anthropologie opening a store in 2011,           sale of the 39,000 sq.m. Overgate Shopping
     Bargains, B&M, Matalan and Peacocks are
                                                     and Apple’s plans to open a store on             Centre by owners Lend Lease, may or may
     all active.
                                                     Princes Street.                                  not end the proposals for an extension to
     The convenience sector also shows some                                                           this centre.
     resilience during otherwise challenging times
     for the wider retail sector.




12   RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010
In Perth a new Primark store is currently
                                                        Retail Index & CPI
being fitted-out in the former Bhs which
closed in Spring 2010. Elsewhere on the         150              Retail Index       CPI
High Street, BrightHouse is also fitting
out a store. At the Highland Gateway,
Inveralmond (former Caithness Glass
factory), Tiso recently opened an interactive
outdoor store which features an indoor
climbing wall, boot test area, virtual bike
                                                100
turbo trainer and children’s soft play area.

In Kirkcaldy City Site Estates is planning
a £40 million refurbishment and extension
of the Mercat Shopping Centre. Proposals
include a multiplex cinema, supermarket,
new shops, food court, leisure facilities,      50
hotel and multi-storey car park.

Planning permission has been granted
to The Peel Group for an extension to its
Straiton Retail Park, on the outskirts of
Edinburgh. The extension will comprise
                                                 0
8,360 sq.m of retail units and an 8,825                 Sep 00      Sep 01      Sep 02    Sep 03   Sep 04   Sep 05   Sep 06   Sep 07   Sep 08   Sep 09   Sep 10
sq.m. department store.
                                                  Source: ONS/Ryden

Also in the development pipeline is a £20
million expansion to Silverburn in Pollok.           Tesco continues to expand using a broad                  In fact, many centres are significantly
Planning consent has been secured for the            range of store formats with Asda and                     weaker than this and it is anticipated that
7,432 sq.m extension to provide a further            Wm Morrison recently launching smaller                   some in the index - which is transaction-
11 shops.                                            store sizes. Waitrose hope to have their                 based rather than valuation-based - will
                                                     first purpose built store (3,345 sq.m)                   show actual falls in prime retail rents
In Stirling a 5,574 sq.m. Class 1 retail
                                                     trading in Newton Mearns, Glasgow in 2011                as new evidence emerges.
development including a foodstore,
                                                     and the American operator, Whole Foods
is planned by Stirling Ventures / Valad
                                                     Market, is looking at opportunities
on Burghmuir Road.
                                                     in central Scotland.
In the supermarket sector, J Sainsbury has
                                                     The Ryden index of prime retail rents
recently had success with the Dawn Group
                                                     for the top 20 centres in Scotland
opening a 4,180 sq.m. store in Prestwick,
                                                     remains unchanged since April's Review.
and in securing consent for an 8,600 sq.m.
                                                     This means that retail rents are falling in
store in Irvine. Wm Morrison is active
                                                     real terms due to the effects of price
across Scotland with new stores in the
                                                     inflation (shown by the CPI / rent index
pipeline in Kirkcaldy, Glasgow and Bathgate
                                                     gap on the chart).
where site preparation works have started.




                                                                                                     RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010               13
 Investment
        Market
     Scottish commercial property recorded a          Office property investment deals include:
     total return of 22.4% in the year to June
                                                       Address                      Property                               Purchaser
     2010 (UK: 24.7%) according to the IPD
     Quarterly Index. This represents a complete       Allan House,                 2,923 sq.m. multi-let mixed            Threadneedle for
     turnaround from the previous year to June         21-25 Bothwell Street,       use building. Tenants include          £6.33 million (7.16%)
                                                       Glasgow                      Scott-Moncrieff, McBains Cooper
     2009 which recorded a total return of -25.3%.
                                                                                    and Living Ventures Restaurants
     Yield improvement has been the principal          Corunna House 1,             4,878 sq.m 1980s office,               PRUPIM for
     reason for the turnaround and has more than       Cadogan Street,              let to Trillium (Prime)                £9.5 million (7.1%)
     compensated for the negative rental growth        Glasgow                      Property GP until March 2020,
                                                                                    tenant break option 2018
     experienced across all three sectors. The
     Quarterly Index has now experienced 12            1 Pacific Quay,              2,754 sq.m. modern office building, Private investor for
     months growth. A spike in performance             Glasgow                      let to the Scottish Ministers       £8.05 million (5.85%)
     around the fourth quarter of 2009 and first                                    with c. 15 years unexpired
     quarter of 2010 followed sustained                Quartermile Two,             4,880 sq.m. modern office              AFIAA for c. £23 million
     investment in the market by UK and overseas       Edinburgh                    building, top four floors let to       (6.75%)
     institutions. Capital growth has eased and in                                  Morton Fraser
     the second quarter total returns fell to 2.8%,
                                                       Braemar House,               2,047 sq.m. multi-tenanted office      Private investor for
     however the decline in rental values has          Union Street,                and retail building                    £2.75 million (8.09%)
     slowed which is encouraging. Scottish             Aberdeen
     property has underperformed the wider UK,
     however, there is a significant weighting         478/484 Union Street,        716 sq.m. office building with         Private investor for
                                                       Aberdeen                     former banking hall let to             £1.61 million (8.66%)
     towards London and the South East within
                                                                                    Clydesdale Bank
     the data analysed and these areas have
     enjoyed a significant recovery.                   Unit 16,                     205 sq.m. new-build office             Peatallan for
                                                       Abercrombie Court,           pavilion let to PanGeo Subsea          £460,000 (8%)
     Across the principal sectors in Scotland,         Westhill
     retail was the strongest performer recording
     a total return of 24.1%. Over the year rental
                                                                                                        Office
     values have fallen by some 3.5%, however,
     yields have also fallen. Out-performance         experience the falls in value and rents that      Some of the heat has come out of the
     within the retail sector can be credited to      retail and office sectors suffered. Also, as      office investment sector. There have
     the strong performance of the High Street        borne out by agency activity, rental values       been fewer transactions and a notable
     (investment) sub-sector.                         within this sector have been the most             retrenching of investor demand away
                                                      robust with a marginal decline of only 0.3%.      from the regions and back into London.
     Scottish offices enjoyed a solid performance
     in the year to June 2010 recording total         Aside from forced sales of secondary              Prime yields continue to hold firm at
     returns of 18.9%. However, performance has       assets, transactional activity has continued      5.75-6% however the definition of what
     slowed on a quarterly basis and this was the     to focus on prime markets. UK institutions        constitutes “prime” has narrowed. Investors
     poorest performing sector in quarter two         became much more selective as cash                now generally require secure income
     with total returns of 2.2%. The sector also      inflows slowed. There remains considerable        streams of 15 - 20 years for single-let
     experienced the greatest fall in rental values   interest in well-secured, long-let investments    buildings and at least 10 years for multi-let.
     at -3.8% over the year.                          especially if there are geared uplifts. With
                                                      UK institutional activity slowing, and in         German and UK funds continue to be the
     Scottish industrials have recorded the           certain instances prices softening, strong        dominant buyers in the prime office market.
     weakest performance over the past year with      interest is again being shown by foreign
                                                                                                        Yields for secondary offices have risen and
     a total return of 17.2%. In part, this is due    investors in the key Glasgow, Edinburgh
                                                                                                        can vary significantly, reflecting the patchy
     to the fact that values were more resilient      and Aberdeen markets.
                                                                                                        demand and investor caution.
     during the downturn and this sector did not



14   RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010
This represents a significant change from       Industrial property investment deals include:
our last Review, where the strength of
                                                 Address                      Property                            Purchaser
demand in the sector was forcing investors
to accept compromised buildings, shorter         2 Campsie Drive,             1,509 sq.m. modern distribution Private investor for
leases and rent guarantees on voids.             Air Cargo Terminal,          unit let to DHL Global          £1.1025 million (7.92%)
                                                 Glasgow International        Forwarding (UK) on FRI terms
This is generally no longer the case.
                                                 Airport                      expiring March 2015. Tenant has
                                                                              option to extend lease for
The ongoing reduction in available city
                                                                              five years
centre Grade A office space has yet
to translate into new development, as            Anniesland Business Park,    17,693 sq.m. multi-let industrial   Hermes for £10.1 million
                                                 Glasgow                      estate let to c. 50 tenants         (8.74%)
development funding remains scarce. It can
                                                                              including Howdens Joinery,
only be a matter of time before far-sighted                                   Wolseley Centre and
investors focus on some of the attractive                                     City Electrical Factors
speculative funding opportunities which are
beginning to emerge, particularly in Glasgow.    City Link, Eurocentral       3,711 sq.m. modern distribution     CCLA for £2.35 million (8%)
                                                                              warehouse let to City Link
Out-of- town office investment transactions                                   Property (Holdings) until
                                                                              September 2017
have been limited by the absence of
significant letting activity and by continued    30 South Gyle Crescent,      c. 2,800 sq.m. distribution         Commercial Management
caution over the supply of available             Edinburgh                    property let to UPS with            for £1.89 million (8.75%)
                                                                              c. four years unexpired
accommodation which overhangs the
market, notably in the Central Belt.             Units 15-25, Denmore         4,936 sq.m. terraced industrial     Tritax Industrial 2 LP for
                                                 Industrial Estate,           estate comprising 11 units          £4.2 million (7.9%)
Industrial                                       Bridge of Don, Aberdeen
Investment activity in the industrial sector     16 Denmore Road,             3,200 sq.m. new-build               Standard Life for
decreased as active buyers became more           Bridge of Don, Aberdeen      industrial and office facility      £5.2 million (7.45%)
selective. The acceleration of prices
                                                 Minto Commercial Park,       c. 7,000 sq.m. of new-build         Ignis Asset Management
reported in the last Review has not been         Altens, Aberdeen             industrial/office space             for c. £12.5 million (7.5%)
sustained; this was inevitable against the                                    (five detached units)
backdrop of substantial market falls in
                                                 Minto Drive,                 1,003 sq.m. detached industrial     Minto Industrial Property LLP
recent years. With limited stock coming
                                                 Altens, Aberdeen             unit and office building            for £1.325 million (9.21%)
to the market, assessing the correct level
of pricing has been difficult for buyers.
On balance, prices have generally levelled      hence the attractiveness of this type of           Following the successful sales of the
off rather than fallen.                         investment. Yields are generally in the            Kenmore and Kilmartin portfolios to a
                                                7.0-7.5% range.                                    number of investors, further administrations
While the inflows of money into the retail
                                                                                                   and portfolio disposals are expected as the
(unitised funds) has decreased, most still      Multi-let industrial estates are also on           banks seek to exit from distressed situations.
have active requirements for industrial         the shopping list of numerous funds and            However, it is anticipated this will be
stock, which by comparison will provide         property companies seeking asset                   conducted in an orderly fashion to avoid
a more generous yield than office or retail     management opportunities. Again yields             flooding the market.
property.                                       have stabilised for the best quality estates
                                                in prime locations and in general lie
Investor demand continues to be strongest
                                                between 7.5-8.0%. In contrast, poorer
for well-secured, single-let opportunities
                                                estates in secondary locations are changing
with long unexpired periods and fixed or
                                                hands for yields in excess of 10%.
minimum rental uplifts. With the economic
recovery still very fragile, the prospects
for rental growth have naturally weakened,



                                                                                           RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010           15
     Retail                                          Retail property investment deals include:
     Demand for prime High Street                     Address                     Property                          Purchaser
     opportunities has strengthened again.
                                                      133-137 Buchanan Street,    1,583 sq.m. prime mixed retail DTZ Investment Management
     As a result, prime yields of sub 5% are
                                                      Glasgow                     and office block. Tenants include for £21.2 million (5.5%)
     readily achievable. However, investors are                                   Phones 4u, T.M.Lewin and the
     very specific in their locational demands.                                   Post Office
     Buchanan Street in Glasgow, Princes Street
                                                      Waitrose, Greenlaw,         3,364 sq.m. forward funding       Private Irish investor for
     and George Street in Edinburgh, and Union        Newton Mearns               of Waitrose supermarket.          £14.25 million (4.75%)
     Street in Aberdeen are the only pitches                                      Pre-let 20 - year FRI lease.
     considered to be truly prime.                                                Practical Completion
                                                                                  scheduled for November 2011
     For those locations considered to be fringe
                                                      63-65 George Street,        1,200 sq.m. retail units let to   DTZ Investment Management
     prime or good secondary, there may be            Edinburgh                   Jack Wills and Crombie with       for £10.4 million (5.61%)
     little or no appetite unless the income                                      c. 12 years unexpired
     stream is undoubted. The volatility in asset
                                                      62-66 George Street,        956 sq.m. of leisure and          F&C REIT for
     pricing in these locations may well throw        Edinburgh                   698 sq.m of offices.              £6.1 million (6.0%)
     up some interesting opportunities.                                           Let to J D Wetherpoon,
                                                                                  and TUI with c. 12 years and
     The ongoing difficulty in securing debt                                      10 years unexpired
     continues to constrain the secondary             Westhill Shopping Centre,   4,530 sq.m. neighbourhood         Invista Real Estate
     market, unless lot sizes are sufficiently        near Aberdeen               shopping centre comprising        Investment Management
     small to allow private investors to                                          24 shops and six office suites.   for £9.25 million (7.2%)
     participate without significant debt.                                        Let to various tenants
                                                                                  including Marks & Spencer
     Shopping centre investment activity              81-93 Union Street          14,245 sq.m. of city centre retail Rockspring for
     has been predominantly in the secondary          & 1-6 Market Street,        comprising four shop units,        £17.4 million (7.26%)
     market, where specialist fund and retail         Aberdeen                    a Bhs department store
     investors are taking advantage of                                            and In-Shops market
     historically cheap yields to pick up
                                                      Units 1-4,                  929 sq.m. of retail showroom      GSS Developments for
     established regional centres.                    West North Street,          and industrial space with         £895,000 (9.32%)
                                                      Aberdeen                    development site
     Demand for open planning consent
     retail parks remains strong, although            101-103 Union Street,       605 sq.m. single retail unit      Rockspring for
                                                      Aberdeen                    let to Office Holdings            £1.75 million (7.6%)
     opportunities to invest have been scarce.
     Bulky goods (restricted use) parks remain
     difficult to sell unless priced attractively.   With limited if any development of new           There are signs that debt is becoming
                                                     stock, rental improvement is an inevitable       more readily available, however the current
     Market Prospects
                                                     consequence.                                     position is a long way from providing
     The property investment market has                                                               debt buyers with adequate choice. It is also
     consolidated over recent months. This           Attitudes are evolving in relation to risk.      notable that where debt is being secured
     consolidation is set to continue over the       There are early signs that institutions and      for investment transactions this is
     next six months. Although the prospect          opportunity funds may be willing to move         significantly slowing up the acquisition
     of yield improvement is limited to certain      up the risk curve and consider more              process.
     sub-sectors, there are clear signs both on      speculative situations.
     the ground and statistically that rental                                                         It is envisaged that the return from Scottish
                                                     The number of lenders active in the market       property over the next six months will
     value decline is slowing as the economy
                                                     and their willingness to lend beyond certain     be made up principally from income return
     begins to recover.
                                                     strict criteria continues to hamper              with possibly some capital growth stemming
                                                     competition for more secondary assets.           from emerging rental value growth.



16   RY D E N SCOTTISH PROPERTY REVIEW OCTOBER 2010
Contacts
Managing Partner Fiona Morton
Head of Consulting Mark Robertson

Acknowledgements
We are grateful for the assistance of Scottish Property Network (SPN)
and Investment Property Databank (IPD).
www.ryden.co.uk
Edinburgh
46 Castle Street EH2 3BN
Tel: 0131 225 6612
Fax: 0131 225 5766

Glasgow
130 St Vincent Street G2 5HF
Tel: 0141 204 3838
Fax: 0141 204 3554

Aberdeen
25 Albyn Place AB10 1YL
Tel: 01224 588866
Fax: 01224 589669

Leeds
Park House
Park Square West LS1 2PW
Tel: 0113 243 6777
Fax: 0113 243 9323

Dundee
Unit 20 City Quay
Camperdown Street DD1 3JA
Tel: 01382 227900
Fax: 01382 229071

Inverness
Moray House
16-18 Bank Street IV1 1QY
Tel: 01463 717202
Fax: 01463 717204




Ryden is the trading name of Ryden LLP, a limited liability partnership registered in Scotland

								
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