Galbraith Commercial Matters Summer 2018

Commercial ISSUE 7 | SUmmEr 2018

MATTERS

Old meets new A tale of two squares l Back on target: Scotland’s investment market l The ‘defurb’ look wins new admirers l Having it all: a woman’s view from the top l EPCs – what you need to know

WELCOME

CONTENTS

2017 was a stronger year than many anticipated. Unemployment fell to the lowest level since 1975, consumer spending was strong and occupier take-up healthy.

As we reflect on the first few months of 2018 we remain cautiously optimistic. While we cannot ignore the impact of political uncertainty together with interest rate and consumer debt increases on market activity, we continue to see enthusiastic support both from UK and overseas investors for the right opportunities in Scotland.

This is partly due to a pricing differential and, in some cases, a currency play, but it is also helped by the global economic recovery and a period of relative calm north of the border post-independence referendum. Indeed, the commercial property sector as a whole, is believed to contribute around £4.8 billion to the Scottish economy.

This issue provides a snapshot of our markets, including some case studies, together with a brief summary of some of the new legislation coming into force this year, a reminder of the increasingly regularised environment in which we operate, such as the General Data Protection regulation, which comes into effect on 25 may 2018 to replace the current Data Protection Act. It will be the biggest overhaul of data protection legislation for more than 25 years and will introduce new requirements for how organisations process personal data.

There are other pieces of legislation worth highlighting, which will directly impact on our business such as LBTT. April 1, 2018 marked the third anniversary of the Land and Buildings Transaction Tax, and tenants of commercial properties prepared themselves for additional reporting and potential LBTT charges.

So, 2018 is likely to be filled with new challenges for all of us, but the nimble and well informed will be able to find new and diverse opportunities to pursue. pamela.gray@galbraithgroup.com

0131 240 6963

GALBRAITH is Scotland’s leading independent property consultancy. Drawing on a century of experience in land and property management, the firm is progressive and dynamic, employing more than 230 people in offices throughout Scotland.

4 A decade of change in the Scottish equity market.

6 Cover story: Old meets new in Edinburgh.

Need to know: Building insurance.

8 A year in the life of a Galbraith graduate.

Case study: Easter Inveralmond, Perth.

9 Galbraith CEO Pam Over on women in the workplace.

10 Deal round-up.

Are you ready for the new data protection laws?

12

EPCs: What you need to know about additional regulations.

Need to know: Drainage and sewerage charges.

14 ‘Defurbishment’ wins new admirers.

New players on the whisky trail.

Appointments.

We provide a full range of property consulting services across the commercial, residential, rural and energy sectors.

Galbraith provides a personal service, listening to clients and delivering advice to suit their particular opportunities and circumstances.

Follow us on Twitter: @Galbraith_Group @Galbraith_COM Like us on Facebook: www.facebook.com/ GalbraithpropertyConsultancy See us on Instagram: www.instagram.com/GalbraithGroup Join us on LinkedIn: www.linkedin.com/company/galbraith

Commercial matters is produced by JK Consultancy, Glasgow, and designed by George Gray Media & Design, St Andeux, France. © CKD Galbraith LLP.

page 2 | Commercial Matters | summer 2018 | galbraithgroup.com

Scotland is Will Sandwell provides a round-up of the Scottish investment market.

The pasT six months have seen continued activity in the UK commercial real estate investment market, with prices rising and yields compressing across most sectors.

UK institutions are again very active, albeit selective and there is a clear weight of overseas money hitting the UK. Equity from Asia and the UAE has been particularly evident in central London and in typical fashion these investors are now starting to look for enhanced yields in the regions having secured ‘trophy’ 3% – 5% yielding assets in the capital.

Scotland is no exception to increased activity and improved pricing. In 2017 approximately £2.27billion of investment stock traded in Scotland, up 21% on 2016 total volume. We have seen multiple £10m – £100m transactions complete in traditional sectors (office, retail, industrial) and the demand for alternative sectors offering long leases (15 years plus, usually with index-linked rent increases) is staggering and shows no sign of fading.

There has been a clear yield gap between English and Scottish assets over the last five years, mainly due to perceived risk from Scotland’s political uncertainty.

The Galbraith Investment team recently spent a day in the City of London visiting institutional investors and UK pension funds. The message was clear: Scotland is very much back up there as a target location. This is promising news for our market. Pricing on those deals which have concluded shows this yield gap between Scotland and England is now reducing.

Here we explore some recent activity.

aberdeen The office and industrial sectors were particularly appealing before a steep decline in oil price at the end of 2015. Investment volumes dropped from £784m in 2014 to only £58m in 2016. Oil prices have increased since Q2 2017 and for the time being seem to have stabilised at $60 – $70 per barrel. Investment volumes since the start of 2017 totalled £237m – some way from the peak but it is positive to see investors such as LCN and Gulf Islamic Investments both acquiring office assets in excess of £40m. Both of these deals have provided net initial yields in excess of 6.50% – a very attractive return when viewed on a global and UK context.

The fundamentals of the Aberdeen market remain the same: global energy companies with very strong covenants requiring best in class real estate for their northern hemisphere operations.

This means developers can still demand long leases (15 years plus) and index-linked rent reviews which generally create attractive investment stock.

Aberdeen remains a global centre of excellence for the energy sector and we expect to see more exciting activity and opportunities in the city over the next 12 months.

back on target

Aberdeen

Glasgow Glasgow has seen £816m of stock traded during the past 12 months including these notable transactions: Frasers Centrepoint purchase of Hillington Park from Patrizia for £137m, a dominant industrial and office estate, and the largest single ownership opportunity of its kind in Scotland.

L&G acquired 3 Atlantic Quay from moorfield for £50m reflecting a yield of 3.75%. This investment comprises a fully refurbished 80,000 sq ft Central Business District office building let to the Scottish Courts and Tribunal Service for 25 years with index-linked rent reviews.

Another key office transaction was the £66m acquisition of the 155,000 sq ft Bothwell Exchange at 122 Waterloo Street which is let to morgan Stanley. The grade A office property was developed by HFD Group and purchased by South Korean-based multi Asset Global Investment reflecting 5.60%.

Again, within the Central Business District, a private Spanish investor purchased a mixed-use office/prime retail block on Buchanan Street and St Vincent Street from royal London Asset management for £48.55m reflecting 5.16%.

Finally, in the out-of-town retail warehouse sector, Sidra Capital (Saudi) purchased the 193,000 sq ft Great Western retail Park for £57m, reflecting a yield of 6.18% from KKr.

s

Glasgow

Activity in the Glasgow market is very promising.

New build office developments have been successful in their leasing campaigns which has in turn triggered investment sales. Buchanan Street remains a 100% prime UK retail pitch and rents

galbraithgroup.com | Commercial Matters | summer 2018 | page 3

Edinburgh

s

continue to grow. The industrial sector has been very buoyant in the Greater Glasgow conurbation and there is good tenant activity across the market, from multi-let to large single let assets.

Investor demand for industrial stock continues to outstrip the supply of opportunities, causing most sales to close via competitive closing date situations.

edinburgh About £962m of investment stock in Edinburgh has traded in the last 12 months. Industrial stock would be a target for most investors but the city and immediate surroundings suffers from a lack of quality new supply and minimal ‘big box’ distribution product. Where small/medium stock is available, for both single and multi-let assets, competition can be fierce.

The retail sector has a slightly mixed consensus but is showing liquidity. The impact of the new St James Quarter Shopping Centre has split opinion and strategies, while George Street rental growth, which has been very evident over the last three years, seems to have stalled slightly. Conversely, Princes Street has recovered with rental evidence being more consistent now than three to five years ago.

Leisure operators have continued to be active in Edinburgh and it seems most national brands have now satisfied their requirements for the core CBD. recent additions include Wagamama, miller & Carter Steak House, Five Guys, Gaucho and The Ivy. Prime yields for £3m – £10m retail and leisure assets sit comfortably in the 4.50% – 5.50% yield range, and openly marketed stock has attracted significant interest from a broad range of investors.

The Edinburgh office sector is a target market for many property companies and UK institutions.

Occupational supply is low, office development lag continues to prevail and re-development of older office buildings to higher value alternative use (mostly residential or hotel) is putting additional pressure on the overall supply, albeit from the bottom end of the quality scale.

Subsequently, rental growth has been proven with £32.50 psf comfortably achieved on modern Grade A office stock and £28.00 psf secured on refurbished core stock. With the supply/demand dynamic, rental growth is something most investors continue to forecast. Due to lack of core CBD development opportunities, many turn to the recycling of existing stock, and standing investments.

Prime Edinburgh office yields sit at 5% – 5.75%, even for those investments offering only two to three years term certain income. We anticipate continued demand and possibly further yield compression over the next 12 to 18 months.

Key recent Edinburgh transactions include L&G’s funding of New Waverley, the £106m government hub office, reflecting 4.29% net initial yield. Abu Dhabi-based Lulu Group purchased the Waldorf Astoria Hotel for £85m, while rockspring acquired an older but prime location office/retail asset on St Andrew Square let to regus and Sainsbury’s for £25.75m reflecting 5.20% in an off-market situation. The building provides an average term certain income of 4.58 years.

In the retail sector, a private investor client of Galbraith purchased the landmark Jenner’s Department Store on Princes Street for approximately £53m, providing 23 years term certain income.

Statistics sources: Galbraith Group / Property Data

will.sandwell@galbraithgroup.com 0131 240 6997

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2013/2014 Very high demand for Scottish commercial property with institutional money creating significant competition.

Within that timeframe transactional purchases from UK institutions are in the region of £2.3bn.

2015 Scottish Independence referendum deters UK institutional spending.

2015 Overseas investors fill this demand and spend more than £1bn.

2016 Investment decisions delayed in the months approaching Brexit. Certain overseas and opportunistic investors take advantage of the market conditions (10% - 15% discount), and are top spenders. Weakened Sterling also fuels increased demand from abroad.

Go with the flow Jamie Addison-Scott explains the sources of equity in the Scottish investment market over the past 10 years.

There has been a clear increase in transaction volume as inflows into scottish commercial property have risen from £900m in 2008 to more than £2.2bn in 2017.

As we are now well into 2018 we expect to see a further increase in investment volumes and a year uninterrupted by elections or referendums.

We anticipate that the yield gap between Scottish assets and their English equivalents will reduce further, possibly to within touching distance. market and investor sentiment is that the likelihood of Scottish independence remains low. With UK institutions now back in the Scottish market, this will fuel improved pricing in certain sectors and locations.

There are early signs of overseas investors

starting to sell out of assets, with more than £500m of sales during 2017.

Our view at Galbraith is that the amount of overseas equity targeting the UK and Scotland is still extremely strong.

We are also seeing a variety of overseas requirements in the market and sources of overseas equity might include: • Private ultra high net worth investors • US private equity • US rEITS • German pension funds • Chinese banks • UAE family offices • Sovereign wealth funds • Korean and Japanese asset management houses To discuss investment opportunities, please contact Jamie Thain (0131 240 6994) or Will Sandwell (0131 240 6997) in our Commercial Investment Team. jamie.addison-scott@galbraithgroup.com 0131 240 2287

All commercial property acquisitions

2017 Foreign capital continues to pour into Scotland, an example being Al Rashed’s purchase of Saltire Court, Edinburgh for £71m. Middle/Far Eastern investors are the biggest spenders, with almost £400m deployed across all sectors, an increase of more than 200% on the five-year average.

All commercial property sales

2014 to 2017 Scotland sees overseas investment total of approximately £4.1bn.

2017 UK institutional investment rebounds, such as Legal & General’s purchase of the Government Hub Office at New Waverley for £106m.

galbraithgroup.com | Commercial Matters | summer 2018 | page 5

Where old meets new Richard Higgins explores the evolution of George Street, Edinburgh and the eastward focus of activity.

edinbUrGh’s George street has seen a renaissance over the past 20 years, with the redevelopment of the traditional new Town squares which bookend it – st andrew square and Charlotte square.

With Galbraith HQ on George Street, the commercial team has been well positioned to watch and be involved in the fascinating evolution of this historic core of the New Town.

Anchoring the east end of George Street, St Andrew Square has undergone a series of big changes since the development of Harvey Nichols and multrees Walk and the eastern end has been transformed into a luxury development enjoyed by many.

The south side of the square has seen significant redevelopment from Aberdeen Standard

royal Bank of Scotland building. In addition, the square’s formerly private gardens are now open to the public, hosting various city events at seasonal festival times, and with the tram passing through the square it all adds to the atmosphere of a vibrant and active area within this prestigious part of the city.

At the western end of George Street, Charlotte Square has retained its traditional charm and feel, with Fordell Estates having acquired 21 properties and refurbished and redeveloped a good proportion of the square into top quality grade A office accommodation. The private gardens remain at the heart and host the annual Edinburgh International Book Festival. At 6 Charlotte Square sits the official residence of the First minister, Bute House, which is also undergoing significant refurbishment.

The award-winning 2013 redevelopment of the south side of Charlotte Square by Corran Properties Ltd further highlights the dichotomy of the two squares. Where the refined, elegant character and traditional nature of Charlotte Square is retained, it has been brought into the modern era with sympathetic refurbishment and development.

By contrast St Andrew Square has repositioned itself around restaurants, retail and mixed use.

Looking over the last two decades or so, we see a considerable shift from the traditional Edinburgh banking and insurance towards more retail and leisure entertainment.

The two squares both blend the old and new, and each is equally important in maintaining Edinburgh’s status as a UNESCO world heritage site and one of the UK’s top tourist destinations, as well as consistently being noted as the best city in the UK in which to live and work.

The vibrancy of the two squares continues along the connecting George Street, which in recent years has welcomed a resurgence of traditional and up-market retailing outlets together with restaurants, bars and office accommodation. It has become a place where classy cocktail bars and top-end high street favourites have become established, making it a popular spot for shopping, eating and drinking; a meeting place for many professionals with the existing building stock continuing to be adaptive to meet the market demands.

The next phase for George Street is presently in consultation with local business and the wider city, but it will retain its historic and important place in the heart of the city.

A refurbished traditional facade in Charlotte Square, while St Andrew Square’s south side is unapologetically modern.

Facing page, top: Charlotte Square’s south side blends old and new. Below: Refurbishment work continues apace in St Andrew Square.

Investments, bringing new leisure and restaurant facilities to the quarter, including Dishoom, The Ivy and others. Standard Life Investments themselves have taken occupation of the 45,000 sq ft upper floors of the south side of St Andrew Square. Although not a large move for them, it reinforces the general shift eastwards of the office core in Edinburgh. meanwhile, alongside the traditional office occupiers of St Andrew Square, the Chris Stewart Group is developing The Edinburgh Grand, a substantial apartment building with space for bars, restaurants and shops within the historic

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Slightly further afield, the office core has redeveloped into Waverley Gate and many new office buildings. St Andrew Square linking via multrees Walk to the new St James’s Centre with its 1970s brutalist concrete development under redevelopment will provide modern shopping facilities with additional offices, hotel and other uses.

We look forward to being involved in and watching the next stages of evolution. richard.higgins@galbraithgroup.com 0131 240 6966

NEEd TO kNOW

Building insurance all buildings should be insured for a sum that covers all remedial and reinstatement works in the case of a total loss.

Under-insurance will leave the owner exposed to any shortfall in the rebuild cost while over-insurance will result in excessive premiums being paid unnecessarily.

To mitigate these situations, the sum insured needs to be accurate for the building. In order that the sum can be correctly determined a building surveyor will need to inspect, measure and prepare the reinstatement cost assessment (rCA) using a combination of construction rates, comparable evidence and lastly, if the building is of standard construction, published building rates.

The need for a detailed assessment of reinstatement costs is all the more pertinent when the building is of a unique design, older construction or built from traditional or nonstandard materials.

Obsolete buildings While a building surveyor will take into account the existing building when assessing the reinstatement cost and allow for replacement on a like-for-like basis, there are some instances where the insurer will consider insuring the building for a reduced sum and replacing it with a less expensive alternative. This can also be applied where the construction method of the existing building is obsolete.

For example, fibre cement roofed industrial units or solid masonry walls.

listed buildings The exception to the above is listed buildings. Although the construction techniques used when the buildings were erected may be uneconomic, their listed status usually requires that they be rebuilt in the same manner. This is likely to be significantly more expensive than using modern methods and, while conservation officers may be open to limited negotiation, rebuilding using traditional methods and materials must be allowed for in the first instance.

average clause The total reinstatement cost of a building should be insured even if a total loss is unlikely. If there is an incident where part of the property is lost or damaged, and the building is under-insured, the insurer will likely revert to the Condition of Average Clause if it exists in the policy. The amount of average applied will be calculated as a percentage of the amount of under-insurance and applied to the claim.

Under-insurance will result in a payment insufficient to cover the loss, which the owner will have to make up.

reviewing insured values rCAs can be updated by applying an increase in line with build cost inflation but should be fully reviewed and recalculated every three years. recent volatility in building costs are affected by material costs such as the shortage of insulation materials caused by a 2017 explosion at a large factory in Germany. Uncertain import costs from Europe (the UK imports approximately 25% of all building materials) have inflated building costs and made it harder to calculate an accurate sum without a full assessment.

The Galbraith Building Surveying team have detailed knowledge of all building types and undertake reinstatement cost assessments of many and varied construction types. We can accurately determine an appropriate rCA for your building but the exact details of your cover should be discussed with your broker.

george.bouwens@galbraithgroup.com 0131 240 3031

galbraithgroup.com | Commercial Matters | summer 2018 | page 7

The graduate’s perspective

dEVELOPMENT & COMMERCIAL CASE STUdY

James Towers reflects on his first year in the Galbraith Building Surveying team.

i hiT the ground running in my first week at Galbraith, and it hasn’t abated since.

From day one I shadowed my colleagues to give me an understanding of the type of work the Building Surveying department undertake on a regular basis.

The first week included a day on a Highland Estate near Newtonmore to look at a recently installed water source heat pump system, and as a complete contrast, a trip to Glasgow to inspect the progress of an office fit-out and refurbishment.

I quickly became aware of how valuable work shadowing is for a graduate as a means of learning from those more experienced in the profession. Within my first year at Galbraith I was gradually given more responsibility to help with a huge range of work from large building acquisitions and dilapidation surveys, to project management and contract administration roles.

Such varied experience has been very important in developing my skills as a building surveyor while working towards my APC. Our Building Surveying team travel often as the work we undertake is spread throughout the UK. Although the Edinburgh office is commercially focussed, I have recently been involved in a residential project on an estate in rural Perthshire. It is rare that I spend a full week in the office, which keeps each day interesting and has allowed me to see parts of the country I have never previously visited.

At present, I am the contract administrator for three refurbishment projects, from South Ayrshire to Aberdeen.

I have also been working on a very large building survey for an acquisition in central Edinburgh, and I am currently negotiating three dilapidations claims for properties in Edinburgh and Glasgow.

The focus now is choosing an appropriate project to use as a case study with a view to sitting my APC at the end of my second year, which is fast approaching.

As well as the day job, working with Galbraith has brought other fun and interesting activities. As a keen mountain biker, last year I took part in the Great Glen Challenge, a sponsored race event run by the rSABI and supported by Galbraith. As well as being an exciting experience, it was a great way to catch up with colleagues from other offices. my first year at Galbraith has been a fantastic learning experience and I am looking forward to seeing what I can get involved with in the future.

james.towers@galbraithgroup.com 0131 240 6996

Motor traders driven to Inveralmond Site: Easter Inveralmond, Perth Client: Private investor

agreed with major motor trade operators Arnold Clark and Evans Halshaw.

The site

Arnold Clark committed to Easter Inveralmond as they were increasingly constrained at their other sites on Perth’s motor mile on Dunkeld road. They have recently completed the construction of a new motorstore showroom and Fiat Arbarth dealership.

Easter Inveralmond is a high profile 12-acre site at Perth’s Inveralmond roundabout on the A9 dual carriageway. Located in the heart of The Fair City’s famous motor mile on Dunkeld road, the development land comprised land zoned for employment and business use suitable for a range of occupiers including car showrooms, hotel, drivethru retail and high-end industrial suppliers.

The role The initial brief was to seek interest in the site from occupiers on long leases as the client was looking for longterm income out of the site rather than a straightforward sale. We tested the market on an un-serviced basis, which attracted a reasonable level of interest, but the recessionary pressures at the time and the potential servicing costs led to the interest falling away.

To widen its market appeal, we advised the client to commit funds to the servicing of the site. This included the construction of a new road with bell mouth openings to each of the plots and infrastructure for mains water, gas, electricity and broadband.

Galbraith acted as Project Coordinators overseeing the project throughout the procurement phase and construction phase to completion. We then carried out a high-profile marketing campaign, which attracted significant interest in the site.

Evans Halshaw has recently submitted a planning application for a motorstore showroom.

At the southern end of the site a Starbucks franchise has also committed to a lease and are soon to commence construction of a drivethru coffee shop. The franchisee sees significant benefit from being located in such a prominent location on the principal arterial route on the western edge of Perth.

They also anticipate additional footfall as a result of the proximity to the new Arnold Clark showroom and Evans Halshaw when it is completed together with the motortrade operators, including Honda and Grassick BmW, to the south.

The analysis Our in-depth knowledge of the site allowed us to have continuity throughout each phase of the site’s development.

By adapting to the market conditions and advising the client to commit to servicing the site we were able to attract fresh interest and ultimately achieve a successful result.

The deals

harry.stott@galbraithgroup.com

Long leases have recently been

01786 434630

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Having it all Pam Over explains why she turns down invitations to speak about women in the workplace.

sinCe becoming CeO of Galbraith in 2016 i have received numerous requests to speak at various events.

While it could be perceived as flattering that my professional views as a chartered surveyor or a business owner are of interest, the reality of the appeal is that I am a woman.

Organisations such as Aspire and the Glass Ceiling Company have admirable ambitions of supporting and encouraging woman in the workplace, but I feel unsuited to attend their events.

Having never been a man in a ‘man’s world’, I have no idea how different my life would have been. I count myself lucky to have had such an interesting and varied career, which has largely allowed me to be in control of my own destiny. I see ability to do the role as the key element – not gender.

There is currently much discussion in the press on equality for women in the workplace. Galbraith is an equal opportunities employer and all our graduates start on the same salary, regardless of gender. As their careers progress, having the ability to undertake the role we ask of them is the only differentiating factor in their financial packages. Of the surveyors we currently employ, 47% are female. my peer group from university continues to meet up some 38 years after we graduated. Generally, they are an impressive bunch: head of property at UK’s largest pension fund; managing one of the big four; head of property for a major bank; owners of property development companies. At the 25th anniversary reunion dinner, the speaker regaled us all with tales of our various accomplishments and gave out prizes to mark the relevant event. There was a prize for the first one of us to become a millionaire, the one with the same job from university, the one with the most ex-wives and so on.

When the speaker came to me I was taken aback to be presented with a baby doll, in recognition of being the only person in the room to have given birth. much hilarity ensued which I quickly joined in, adding that there would be a

“

significant population crisis if men were ever exposed to the pain of child birth.

Although the doll went astray that evening, the message that I was ‘special’ as a mother stayed with me. my three children are my absolute pride and joy and while there have been many other influences in their lives, my role in their development is the one I am most proud of. recollection of that helps me when, as an employer, we try to ensure anyone who wishes to become a parent can work their career around their personal circumstances.

Pinned to the notice board in our kitchen for some 20 years is one of the ‘Dot’ cartoons, created by Daphne David, which perfectly sums up the conundrum of any parent trying to manage everything. Below a drawing of Dot fast asleep on the sofa with a book face down on her stomach, it reads: “After Dot got home from work, picked up the kids from school, gave them tea, tidied the house, vacuumed the garden and polished the hamster, she could relax with her book. How ‘The modern Woman Has Become Free’.

Like many organisations, we recognise the problem of staff trying to juggle their career with childcare, and do what we can to help. my view is that someone with ability and talent will always be employable. Pressing pause in a career path for whatever reason, be it to go travelling, have a family, follow another interest, is not necessarily terminal to the career. I did not work at all between 1990 and 1996.

Pressing pause in a career path for whatever reason, be it to go travelling, have a family, follow another interest, is not necessarily terminal to the career.

The part-time solution or request can be trickier, especially since we are a service industry with clients relying on our professional advice to enhance and protect their property assets. Working from different offices and on different days in a shortened week isn’t always easy, for colleagues or clients – and how many of us have been frustrated by a deal going on hold from a Thursday evening through to a Tuesday morning due to part-time advisors?

As an employer, we try valiantly to be flexible and helpful in each and every case, but we have to balance this with our duty to our clients and our other staff to ensure a first-class service can be delivered 100% of the time.

So, my words of wisdom to the younger surveyor of any gender are: • You get one chance in life of being a parent to small children. They need the physical presence of a caring human being.

• A career built on enthusiasm, interest in the role and ability will be a successful career regardless of any gaps.

• Superwoman (or man) are urban myths of the ’90s and do not exist. It’s simply not possible to be the ‘perfect’ parent all of the time while being the ‘perfect’ surveyor.

I would be delighted to be asked to hold forth on how to specify a glass ceiling in its physical context, its structural capabilities, the range of options, constraints on design etc. As for the metaphorical glass ceiling, I am still looking for mine and conclude it quite rightly does not exist in our style of organisation. pam.over@galbraithgroup.com

0131 240 6960

galbraithgroup.com | Commercial Matters | summer 2018 | page 9

dEAL ROUNd-UP Galbraith secures letting for animal hospital expansion The Galbraith Commercial Asset management Team, acting for Buccleuch Property, has secured a new 15-year lease to Vets Now at 123 / 145 North Street, Glasgow for the expansion of the company’s veterinary hospital into a world-leading emergency centre of excellence.

Vets Now agreed a simultaneous surrender of their existing lease over the ground floor and entered into a new 15year lease over the ground, first and second floors, of the prominentlypositioned four-storey building in Glasgow’s city centre.

Pamela Gray, Partner at Galbraith said: “This is a good example of a landlord and tenant working together to find an occupational and leasing solution which works for both parties. Our client has secured a straight 15-year lease to an excellent tenant while Vets Now have the platform to create a state-of-the-art 24/7 emergency and speciality hospital.

“The deal takes the Vets Now overall occupation to around 17,300 sq ft with 26 car spaces and the building is now fully let.”

Vets Now is expanding on to all three floors of 123 / 145 North Street, Glasgow.

On cloud nine The ground floor of Great michael House on Links Place in Leith is now fully let. Tenant Lyles Sutherland, who design bespoke cloud software, have taken the remaining suite of 3,084 sq ft.

Foxglove have also added to their service office offering with a new coworking space of 2,115 sq ft.

hungarian rhapsody Cairncross House, on Union Street in Edinburgh is to become home to Hungary’s first consulate in Edinburgh.

They have taken an open-plan suite on the first floor of 1,720 sq ft, at a rental of £15.50 sq ft. They are currently carrying out fit-out works and hope to open before the summer.

silver service Silvermills Court in Edinburgh’s New Town has two new tenants, with Uber taking 2,110 sq ft at number 23/1 in December 2017 to be used as an administrative office, and fashion accessories brand Powder taking 1,733 sq ft at number 17/1. The development has one remaining suite available of 1,453 sq ft.

INVESTMENT dEALS portland house, renfield street, Glasgow Galbraith advised Topland on the investment acquisition of Portland House. A multi-let office and retail asset extending to approximately 37,000 sq ft

Portland House, Glasgow.

in the heart of Glasgow’s CBD. The property is let to Tesco and Browne Dental Group at ground floor level with seven upper floor offices let to a variety of tenants. The asset was identified and acquired on an off-market basis for £4.50m exclusive reflecting 8.70% net initial yield and an attractive overall rate of only £120 psf.

MacKean Crescent, invergordon Galbraith advised an international whisky distiller on the off-market purchase of two warehouses in Invergordon for storage use. The adjoining properties extend to 36,562 sq ft and included one warehouse,

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48 High Street North Berwick.

which was already occupied under a lease.

3 Market place, north berwick Galbraith were instructed to sell 3 market Place on behalf of a private investor. Having prepared the asset for market, early targeted circulation took place which generated interest on an exclusive basis. The property is let to Faith Hairdressers until 2029 and sold for £175,000, reflecting 4.62% net initial yield.

4 Westerton road, east Mains industrial estate, broxburn On behalf of a private investor, Galbraith launched the sale of an industrial

Are you ready for the new data laws?

Linda Kinniburgh outlines the most important change in data privacy regulation in 20 years.

The General data protection regulation is europe's new framework for data protection laws.

Its aim is to harmonise data privacy laws across Europe as well as give greater protection and rights to individuals. It comes into effect on may 25, 2018.

There are 99 articles setting out the rights of individuals and obligations placed on organisations covered by the GDPr. These include allowing people to have easier access to the data businesses hold about them, a new fines regime and a clear responsibility for organisations to obtain the consent of people they collect information about.

In addition, businesses that conduct telephone, email or other electronic marketing need to comply with the Privacy and Electronics Communications regulations.

Businesses covered by the GDPr will be more accountable for their handling of people's personal information. This will include having data protection policies, data protection impact assessments and having relevant documents on how data is processed.

There is a requirement to have documentation on why personal data is being collected and processed, descriptions of the information that's held, how long it's kept for and descriptions of security measures.

Under the GDPr, data access requests can be made free of charge. When someone asks a business for their data the information must be provided within one month. It is inevitable that, with the scrapping of the previous charge and the increased awareness of the public to the use of personal data, businesses will have more data access requests.

MacKean Crescent, Invergordon.

investment on Westerton road in the open market and, following competitive bidding, sold for £617,500 reflecting a net initial yield of 6.57%. The price achieved was 18% over the asking price and reflects the weight of money seeking good quality industrial investments. The property is used as a scaffolding yard in a prominent and accessible location, providing a rent of £42,500 p.a. with a fixed rent uplift structure.

The investment provides seven years’ term certain income.

48 high street, north berwick Galbraith sold the prime market town retail asset pre-marketing, having

4 Westerton Road, Broxburn.

prepared it for sale. The property is let to Time & Tide until April 2024 at £12,000 p.a. and sold to a private investor for £230,000 reflecting a net initial yield of 5.07%.

retail parade, 74-78 stenhouse place, edinburgh Galbraith identified and acquired this neighbourhood retail investment on behalf of a private client for £1.325m reflecting a net initial yield of 6.72%.

Comprising a modern parade, the property is let to three strong covenants including Tesco, Greggs and Ladbrokes producing a rent of approximately £94,000 p.a.

If a business does not process an individual's data in the correct way, it can be fined. If there's a security breach, it can be fined. These penalties will be decided upon by the ICO, with serious breaches facing fines of up to €20 million or 4% of a firm's global turnover, whichever is greater.

These are much larger than the current maximum penalty of £500,000. The ICO has indicated that it will target businesses who have failed to take any steps to become compliant – so ignore this legislation at your peril.

For more information, visit the ICO website on ico.org.uk

linda.kinniburgh@galbraithgroup.com 0131 240 6998

galbraithgroup.com | Commercial Matters | summer 2018 | page 11

NEEd TO kNOW

Drainage and sewerage charges WaTer, sewerage and drainage charges are payable by owners and occupiers of all non-domestic properties which are connected to the public network in scotland, including vacant properties.

From april 2020

On April 1, 2018 the water industry began to use the most up-to-date rateable values (rV) as the basis for charging for all properties.

Previously, drainage and waste charges were calculated on historic valuations, some dating back to 1995.

example: Please note this example is for a metered property. Charges are estimated based on a current rV of £100,000 and a live rV of £200,000.

Your charges will be based on your property’s live rV and the new unit rate.

how will your charges change?

It does not include water or waste water volumetric charges (based on consumption), trade effluent charges or any discounts that may be applicable.

Inevitably some will have seen an increase in charges as a result of this change. However, to allow businesses and landlords to plan for the full impact, the changes will be phased in over three years.

The example also gives an indication of potential costs if your property is vacant (not listed). Note that car parking spaces are also charged for property and road drainage charges.

At Galbraith we employ specialist brokers to ensure we get the best deal on all utilities for both landlords and tenants.

2018/19 Two thirds of your charge will be based on your property’s current rV and unit rate. One third will be based on your property’s live rV and the new unit rate for impacted charges.

Green is the new black

2018/19 Property Drainage: £3,318.07 road Drainage: £2,215.53

2019/20 Property Drainage: £3,903.13 road Drainage: £2496.07

Jamie Addison-Scott looks at the impact of additional EPC regulations.

2020 onwards Property Drainage: £4,488.20

2019/20

road Drainage: £2,866.60

One third of your charge will be based on your property’s current rV and unit rate. Two thirds will be based on your property’s live rV and the new unit rate for impacted charges.

jill.gayford@galbraithgroup.com 0131 240 6966

When the legislation was first introduced, energy performance Certificates, commonly known as epCs, came as a surprise for landlords, with many only undertaking energy assessments immediately before a sale or letting.

EPCs are needed for almost all commercial premises over 50 sq m (538 sq ft): when newly built; after major refurbishment works; or when offered to the market for sale or to let. There are various exemptions, including listed buildings, buildings with no heating system, and religious buildings. Failure to provide an EPC can result in fines. In Scotland, local authorities can impose fines of 12.5% of the building’s rateable value, up to a maximum of £5,000, on a building owner and anyone acting on their behalf when marketing the property.

The Scottish Government introduced EPCs to comply with the Energy Performance of Buildings (Scotland) regulations 2008. The legislation catered for a phased introduction of EPCs from January 4, 2009. Initial regulation required assessment and availability of the EPC and the industry has now been working with this for approximately 10 years.

From September 2016, the legislation confers additional obligations on property owners in relation to the information which they are required to provide within an EPC and reassessment or additional surveys may have been required to update existing EPCs. The most important element from the new requirements is the Section 63 Assessment, which is a new energy performance regulation that came into effect in Scotland on September 1,

page 12 | Commercial Matters | summer 2018 | galbraithgroup.com

2016. Owners of commercial properties in Scotland, with a floor area of more than 1,000 sq m (10,764 sq ft) which don’t meet the 2002 Building regulations, have to produce an Action Plan to accompany the EPC when they are selling or leasing their properties. An Action Plan identifies targets for energy and emission savings and clarifies what improvements can be made to the building to meet these targets.

Unlike similar regulations in England and Wales, the new Assessment of Energy Performance of Non-Domestic Buildings (Scotland) regulations 2016 will not prevent owners from leasing properties with poor EPC ratings. Instead, owners will have two choices when registering the EPC rating: 1. Improve the building’s energy and emissions performance within 3.5 years of the date of the Action Plan.

2. Defer action and monitor and report the building’s performance in an annual Display Energy Certificate.

The regulations currently allow landlords to defer action indefinitely, but it is likely that they will be updated soon to stop the continual use of annual Display Energy Certificates. Both options come at a cost, but the aim is to encourage energy efficiency improvements across commercial properties.

There are a number of factors that those buying, selling or leasing a property should be aware of.

• Sellers must take into account the costs of improvement works or implementing measures when pricing the property. Although there is no requirement for the improvement measures to be implemented before the property can be sold, it is open to negotiation as to when the improvements are undertaken and at whose cost.

• If buying a property as an investment, the purchaser should consider if the current service charge provisions allow the landlord to recover the cost of improvement works or monitoring the property under the annual Display Energy Certificate.

• Landlords negotiating new leases should ensure that they reserve the right to carry out any Action Plan improvement measures and agree with any prospective tenant who is responsible for such works, however, ultimate responsibility of compliance rests with the landlord.

• Tenants are increasingly conscious of building efficiency and we envisage this is likely to be the biggest influence and incentive for creating more efficient buildings.

This change is significant, and the transparency of Energy Performance is starting to have an impact on liquidity on commercial properties. It is now clear to prospective purchasers that energyrelated improvements (capital expenditure) may be required.

“

An Action Plan identifies targets for energy and emission savings and clarifies what improvements can be made to the building to meet these targets.

We are not yet recording a quantifiable impact on pricing with many vendors choosing to defer the implementation of Action Plans on older properties. We regard this as a ‘lag’ in reaction from certain elements of the market. Pricing may start to be adjusted accordingly for those properties falling below the required standard and vendors may begin to proactively improve energy ratings before considering a sale.

We would recommend this as it forms part of a well-advised preparation for sales process.

jamie.addison-scott@galbraithgroup.com 0131 240 2287

galbraithgroup.com | Commercial Matters | summer 2018 | page 13

Planning for a bright future GALBRAITH is pleased to announce two new planning appointments.

Joanne Plant (above) joins the firm as Senior Planner from Locogen Consulting where she worked in the renewables sector for five years. Prior to that, Jo was with the Farningham McCreadie Partnership and then multi-national consultancy WYG. Jo has been involved in a number of complex development projects in her career, including a solar array in the New Forest, an ‘enabling’ residential-led development in the Ayrshire Green Belt, and a 250,000 sq m data centre in south-west Scotland. She brings more than 15 years of planning consultancy experience to Galbraith, where she will be responsible for providing guidance and advice to existing clients as well as supporting the growth of the firm’s planning services.

Defurbed space at 1 St Andrew Square, Edinburgh.

To ‘defurb’ or not to ‘defurb’?

In addition, Alan Farningham joins the team as a consultant to provide the benefit of his significant experience in planning consultancy across the UK.

Katie Gibson considers the significance of the growing trend of the office defurbishment.

Calum Innes, partner at Galbraith responsible for planning services, said he was delighted to have both Alan and Jo on the team as their immense experience will be a significant advantage to both existing and new clients.

iT sTarTed in london’s shoreditch and spread throughout the regions – the defurbishment style of exposed services and natural finishes has steadily grown in popularity and it’s here to stay.

Jo said: “I’m thrilled to join Galbraith and I’m looking forward to working again with Calum and Alan to provide our clients with a first-class service.”

Jo can be contacted on: joanne.plant@galbraithgroup.com 0131 240 3030.

Once the signature style of the tech occupier or the entrepreneur, the ‘defurb’ is now in vogue with the professional firms who traditionally opt for the white box look with clean finishes. One such example is UBS Wealth management, who have taken the third floor of 1 St Andrew Square (3,973 sq ft), in Edinburgh.

So, what is the appeal of the ‘defurb’?

Occupiers are changing and so are their needs. With the UK’s unemployment level at a

page 14 | Commercial Matters | summer 2018 | galbraithgroup.com

40-year low of 4.3%, staff retention and attracting new staff is no longer solely about wages and benefits. Employers want space that is creative and engaging to get the best from their employees, and to attract younger staff.

Landlords currently have little appetite for speculative new developments. One reason for this is rising construction costs following the Brexit vote, with general tender rates up by 10-12% and materials prices have risen even more. This has led to a growth in refurbishment – and the increase in popularity of the defurbishment style – to bring tired buildings back to life and into the new creative world.

The defurbishment option offers landlord and developers several benefits, not just to meet the new trend. It is increasingly used for refurbishments of 1960s or 1970s buildings where the slab-to-slab heights are low, meaning that traditional suspended ceilings

New players on the whisky trail Calum Innes takes the commercial measure of the water of life. sCOTland was recently voted the world’s goto holiday destination and, in addition to its breath-taking scenery, there is no doubt that whisky and castles are significant attractions.

The castle-building industry is not currently witnessing a period of growth, however the same can’t be said for distilleries with the daily press regularly featuring new distilleries in the pipeline.

The total value of Scotch whisky exported from the UK last year was £4 billion, rising from £3.8 billion the previous year. While production has historically peaked above this level; the seismic shift is the fact that single malt exports were in excess of £1 billion and now represent nearly 10% of the volume of Scotch exported and more than 25% of its value.

This growth in premium product has fuelled interest from a number of new players looking to enter this market. Although merger and acquisition continues among the global players, there is an emergence of new entities funded by private equity who are looking to develop smaller, niche distilleries to capitalise on the single malt market.

Picture courtesy of CDA, architects for the project.

are not an option as they reduce ceiling height too much, or do not allow for services space.

The downside of the ‘defurb’ specification is that those exposed services such as ductwork, light fittings, wiring and pipework tend to require a higher specification, neatly installed finishes and sometimes they need to be prefinished, all of which increases costs.

It is a balance between a number of factors as to whether the ‘defurb’ is the right option for the landlord as costs per square metre tend to be similar overall. A good quality defurbishment can command rents on a par with Grade A space. Indeed, it is reported that £32.50 sq ft has now been achieved in the Edinburgh city centre on a ‘defurbed’ building. It is also widely reported that a whitebox (traditional) refurbishment has just achieved a rent of more than £33.00 sq ft in the core city centre.

The market is evolving and there’s a place for all styles of modern space. The factor which still remains the biggest driver for occupiers is location, location, location.

katie.gibson@galbraithgroup.com 0131 240 6981

“

Employers want space that is creative and engaging to get the best from their employees, and to attract younger staff.

Of course, it is not just whisky which has been hitting the headlines as spirit distillation has become de rigueur with gin production reaching dizzying heights.

Notwithstanding the popularity of gin, the production of Scotch whisky is a more serious business. For a product to be sold as Scotch whisky, the spirit must be produced and then matured in oak casks in Scotland, the latter for at least three years. Accordingly, there are significant barriers to entry in achieving such designation and a greater requirement for working capital to take account of the lag, albeit a bit of gin production in the meantime might certainly help cash flow.

There are currently around 125 licensed Scotch whisky distilleries, which is an increase of 15 over a five-year period and we are certainly aware of at least another ten in development.

Galbraith has been involved with a number of new distillery ventures from the perspective of site selection and ensuring all the key elements are in place to create the latest ultimate elixir or alternatively providing valuation advice for an exciting new enterprise, with glistening stills and rows of oak barrels quietly maturing in the bond.

Given the success that is Scottish tourism and whisky, perhaps it’s time to build a few new castles?

calum.innes@galbraithgroup.com 01738 456075

galbraithgroup.com | Commercial Matters | summer 2018 | page 15

OUR EXPERTISE l Asset management l Building surveying l Commercial valuation l Facilities management l Investment consultancy l Professional services l Project co-ordination l Property management l Sales, lettings & acquisition In addition to our specialist services, we manage in excess of £450 million of commercial property across the Uk. We deal with around 750 tenants in more than 120 properties from single units to large multi-let environments such as shopping centres.

CONTACTS George Bouwens Building surveying 0131 240 3031

george.bouwens@galbraithgroup.com

Martin Cassels Building surveying 0131 240 6992

martin.cassels@galbraithgroup.com

Nicola Charleston Planning, professional & valuation 0131 240 2968 nicola.charleston@galbraithgroup.com Jill Gayford Property management, asset management, professional & valuation 0131 240 6987 jill.gayford@galbraithgroup.com katie Gibson Agency (office, retail & industrial) 0131 240 6981 katie.gibson@galbraithgroup.com Pamela Gray Asset management, professional & valuation, property management 0131 240 6963 pamela.gray@galbraithgroup.com Richard Higgins Agency (investment, office, retail & industrial), asset management, professional & valuation 01786 434625 richard.higgins@galbraithgroup.com Calum Innes Agency (development & commercial), planning, project co-ordination, professional & valuation 01738 456075 calum.innes@galbraithgroup.com Pam Over Asset management, project development & co-ordination, property management 0131 240 6965 pam.over@galbraithgroup.com Jo Plant Planning 0131 240 3030

joanne.plant@galbraithgroup.com

Will Sandwell Investment agency 0131 240 6997

will.sandwell@galbraithgroup.com

Peter Scott Aiton Building surveying 0131 240 6967

peter.scottaiton@galbraithgroup.com

Harry Stott Agency (development & commercial), planning, professional & valuation 01786 434630 harry.stott@galbraithgroup.com James Taylor Building surveying 01786 434610

james.taylor@galbraithgroup.com

Jamie Thain Investment agency 0131 240 6994

jamie.thain@galbraithgroup.com

Lewis Thompson Building surveying 0131 240 6964

lewis.thompson@galbraithgroup.com

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