The Future of Glasgow's Real Estate

The Future of Glasgow's Real Estate
 
Investing in Glasgow's future

2 February 2017, by Savills Research

The city of Glasgow continues to evolve supported by strategic investment in key projects

 

Economic growth has, and will continue to be, supported by considerable investment in the city.

Glasgow has enjoyed 9.9% GVA economic growth over the past five years. This exceeds the Scottish average of 8.4% and is set to continue, with growth expected to reach 7.2% over the next five years.

Investment kick-started by the Commonwealth Games helped Glasgow put its best foot forward and has created a sense of momentum within the city.

Since then, the signing of the City Region Deal in 2014 has brought in £1.3 billion of additional investment from Westminster and Holyrood. This will be used to pay for major transport initiatives including the airport tram link, urban improvements and employment programmes.

Private investment in the city region will bring forward a number of landmark schemes, primarily in the city centre.

 

 
Stadium in Glasgow

▲ Public sector investment has supported economic growth

A sporting, retail and cultural powerhouse

Home to the largest sporting infrastructure, boosted by Glasgow’s 2014 Commonwealth Games legacy, as well as the SSE Hydro; the third busiest entertainment arena in the world, Glasgow can truly be classed as a cultural powerhouse.

The largest retail centre in the UK outside London, Glasgow’s shopping provision attracts a catchment of around 90 million each year, with average annual consumer expenditure comparatively high at £2,480 per person, according to data from CACI.

Glasgow’s music, food and sport offering confirms the city’s reputation as an international destination. The tourism industry brought 2.3 million visitors to the city in 2012, generating £495 million of income for the city. This is set to grow to £771 million by 2023, bringing an additional 6,600 jobs.

Start ups and creative industries

Glasgow is home to a diverse start up scene and in recent years, the city has attracted a number of digital media and tech start up companies.

One result has been the employment growth of the technology, media and telecoms sector, which has grown by 11.5% over the last five years. This industry is set to see a further 4.8% growth over the next five years, supported by the introduction of ultra-fast fibre network internet in the city. Download speeds will exceed one gigabit per second, making Glasgow one of the best connected cities in the UK.

The regeneration of the area around Port Dundas has created a new ‘cultural hub’, through the provision of collaborative workspaces, such as the Whisky Bond, along with event and exhibition space.

The expansion of Glasgow School of Art’s campus to include the previous Stow Campus site, alongside RSAMD’s increased studio provision will increase footfall to this area, connecting Cowcaddens and Garnethill.

Office market

Available Central Glasgow supply of all grades of office stock stood at 1.8 million sq ft at the end of 2016, which equated to a vacancy rate of around 13.7%. This has increased recently due to the availability of refurbished office space.

Central Glasgow supply of Grade A space (including new build and top refurbishments) stood at circa 400,000 sq ft at the end of 2016. With circa 53,000 sq ft of new Grade A stock currently under offer there is less than 13 months of Grade A supply remaining, which Savills classify as a shortfall.

Uncertain levels of demand due to perceived economic challenges has resulted in no speculative space under construction and we do not expect to see any new Grade A office development until 2020, at the earliest.

FIGURE 1

Grade A office space is in short supply

 
Figure 1

Source: Savills Research

Residential development

In the year to June 2016, 4,749 new homes were completed within Greater Glasgow, of which 31% were social housing tenures. This is significantly short of the 6,110 new homes per year identified as required by the Clydeplan HNDA (housing need and demand assessment).

The local authorities surrounding the city supplied 87% of new private supply in the year to June. Meanwhile, the city of Glasgow has the strongest projected household growth rate in the region.

Based upon the five-year average of 518 completions per annum there is potentially a shortfall of over 11,000 homes over the next five years within the city, excluding any historic undersupply.

FIGURE 2

Glasgow’s housing shortfall

 
Figure 2

Source: Savills Research

A growing rental market

Affordability constraints, a growing economy and lack of new supply, particularly in key locations such as the Merchant City, have contributed to a growing private rented sector.

Between 2011 and 2015 the number of households in this tenure increased by 12,000 and now account for 20% of all households within the city.

During the same period, rents increased by 16%, and in the past year they have increased by a further 7.2%, according to Citylets. The average rent for a two bedroom flat now equates to £754 per calendar month.

Changes in tax liabilities for rental properties, the additional dwelling supplement on buy to let purchases alongside tenancy reform could reduce the supply of rental stock, ultimately creating greater opportunities for entirely rental driven development.

Student housing market

Student housing has been the main source of development in recent years, building out many sites which might once have been for residential or office.

There are currently 12,000 student beds, catering for a student population of 67,000. There is potential for a further 8,000 beds, but it is highly unlikely that these will all be delivered due to financial constraints.

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Key Contacts

Emily Dorrian

Emily Dorrian

Associate
Residential Research

Savills Glasgow

+44 (0)141 222 4132

 

Mike Barnes

Mike Barnes

Research Analyst
Commercial Research

Savills Margaret Street

+44(0) 203 107 5459

 

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