MATT BELLSHAW, Head of HBD Scotland, looks at the issues driving the market – from supply shortages to an increasing emphasis on the environment and employee wellbeing.
Glasgow and Edinburgh are two cities in Scotland where we have a particular focus on urban development. In property terms, one of the biggest challenges for both locations is the supply of Grade A office stock. The turbulence of the last fifteen years – from the global financial crisis to Indyref, then BREXIT and COVID-19 – means the property markets in Scotland’s most populous cities have been confronted with a lack of availability and only a trickle in the committed pipeline.
Both cities have repeatedly attracted significant international investment, and both have an immediate real estate problem. If you were thinking of locating your business ‘tomorrow’ and wanted, say, 60,000 sq ft in the city centre – likely creating 600+ jobs – you simply couldn’t get the space, even if you were bringing jobs and prosperity to a city economy.
Construction is underway in areas of the cities, but it isn’t here right now, and it’s likely much of the committed space will be let prior to completion. This supply dynamic has been emerging for some time with virtually no speculative development for the last decade and a half; the norm has become development predicated on pre-letting. There’s only one fully speculative building in central Glasgow, which runs to circa 95,000 sq ft. Although with floor plates of around 10,000 sq ft, if you’re a financial institution or a government department, you will almost certainly need something larger.
The challenge for each city is to support both developers and investors, with clarity around planning and the regulatory framework. Certainty reduces risk and will encourage investment in the construction of the next generation of buildings, which remain a key missing part of business infrastructure, necessary to support economic growth within both city regions.
Prior to the pandemic, there was a perception that the wider investor market was beginning to recognise the opportunity Scotland offers. COP26 will put the nation firmly on the international stage later in the year, and hosting this international event at this pivotal moment, when the property market is so hugely relevant, is an opportunity to whet investor appetites. With the stage set for COP26, now’s the time for the next generation of buildings.
As we plan for the future, we need to recognise that both new buildings and the technologies we can deploy in refurbishing or repurposing existing buildings, can play a critical role in reducing carbon. Energy efficient new buildings are only one aspect of the solution. We must remember 80% of the buildings which will exist in 2050 have already been built. A less talked-about aspect of the challenge ahead is the impact of the ‘embodied carbon’, reflecting the carbon footprint of materials used in the development process.
Performance efficiency and green power are not the end of the journey to true net zero carbon. As investor analysis and regulation in respect of carbon matures further, the property sector will be compelled to respond. Our industry – whether we’re talking about development in the industrial, urban commercial or residential sectors – has a responsibility to reduce emissions in both construction (embodied energy) and operation (in-use energy).
We’re now less than a decade away from 2030 – one of the key dates around which many businesses are building their carbon commitments. Companies will be looking at real estate assets and be making decisions, which, perhaps for the first time, will be dominated by their sustainability agenda. That’s now a commercial reality. Investors too are thinking about their bottom line. Institutions of all stripes – from insurance companies to pension funds and asset managers – controlling trillions of dollars worldwide, are coalescing philosophically and formulating assessment criteria to manage their portfolios. If they’re backing companies that don’t fully recognise the climate crisis or aren’t adequately preparing, then either the companies change, or the investors reallocate their funds.
Linked with sustainability, another subject that has been increasingly intruding on corporate real estate decisions is wellbeing, also part of the wider Corporate Social Responsibility (CSR) agenda. I’m specifically talking about the contribution of buildings to people’s mental and physical health and their work/life balance. For companies looking to attract the right talent, their building is a key selling point and should embody their culture. Staff are no longer only concerned about their pay packet and investors are increasingly taking a keen interest in the CSR strategy of the businesses they support.
In my view, the death of the office was announced far too prematurely. People are social animals; we value interactions with colleagues, customers, and friends. A good office will help breed that. Of course, we now have more faith in technology, after what’s been an enormous compulsory work-from-home experiment. We may in the future be more selective about why, where and when we work from the office with our colleagues in person, but many people have missed that connection a lot. The pandemic has accelerated industry trends which were already emerging, and modern organisations have surprised themselves with their ability to be flexible. The property market is changing, but it was ever thus.
I’m hopeful we are seeing the green shoots of an enlightened approach to sustainability, where CSR adds measurable value, and can be enabled through real estate. All these ideas fit closely with the HBD philosophy of places with purpose. The coronavirus pandemic has just highlighted the need for the important work we were already doing across the UK – creating the best possible spaces and locations to attract people and businesses into a city.
To discuss potential opportunities for development and partnership with HBD in Scotland, please contact Matt direct via email at matt@hbd.co.uk