The flight to quality among office tenants is a broad-based phenomenon that has been particularly pronounced in Glasgow’s City Core, where vacancy and demand trends are diverging markedly between the top two tiers of office buildings.
Since the pandemic set in and environment, social and governance came to the fore, the highest quality (5 Star) offices with the best wellness and sustainability features have enjoyed positive net absorption and low vacancy, allowing landlords to push headline rents on.
The submarket’s new builds at 177 Bothwell Street, Cadworks and 2 Atlantic Square are all rated 5 Stars. Together they have around 130,000 square feet available, equivalent to take-up in the buildings in the past three quarters and a percent leased rate of 75%.
Owners of 4 Star-rated properties, which sit slightly further down the quality spectrum and had little trouble attracting occupiers before the pandemic, have more to be concerned about.
Since corporate office tenants sharpened their focus on ESG-related issues, net absorption in 4 Star buildings has been strongly negative, with the vacancy rate more than doubling to 25%, equivalent to over 1 million square feet of empty space.
4 Star buildings with more than 100,000 square feet available include landmarks Aurora and 123 St Vincent Street, while 55 Douglas Street, Lucent at 50 Bothwell Street and 200 Broomielaw each have around 80,000 square feet for lease.
All these buildings have either been refurbished, or will undergo ESG-focused upgrades, aimed at luring tenants away from other nearby buildings when leases expire.
Occupier demand for the submarket’s growing glut of second-hand refurbished space is failing to gain traction, however, which highlights some of the challenges office landlords in Glasgow and other major cities face.
CoStar’s Glasgow City Core office report, which covers the above theme in more detail, can be viewed here.
Presentation slides from our latest Market Insights briefing can be downloaded here.