Although take-up of Grade A office space in central Glasgow rose to an encouraging 153,000 sq ft in the second quarter of this year, total lettings for 2010 are forecast to be lower than 2009's, according to DTZ's latest 'Property Times' report.

The lower level of lettings is a result of the significant number of exceptionally large Grade A deals that went through in the third quarter of 2009,

City centre availability fell back in Q2, particularly Grade A, following the increase in take-up. Demand was driven by the financial and legal sectors, with Maclay Murray & Spens and Ernst & Young taking 38,000 sq ft and 21,000 sq ft respectively in HF Developments' newly completed G1 building in George Square.

"Overall though, availability is expected to be flat in 2010. The development pipeline is now effectively empty and future released space is expected to be offset by take-up", said Ben Clarke, DTZ's head of UK Markets.

"Headline rents are set to remain static in 2010, but as the proportion of Grade A availability falls, we anticipate that landlords will begin to take a harder line on incentive packages on larger deals - especially on those over 20,000 sq ft."

The most significant deal of the first half of the year was NFU Mutual Life's decision to purchase the 75,000 sq ft newly completed Clarion building, with 43,000 sq ft for owner occupation. NFU previously operated from various pockets of Grade B space around the city centre.

At £26 per sq ft, prime rents remained static in the three months from April till June, with landlords offering incentives of 28 to 36 months rent free on a 10-year lease. Ben Clarke said: "Following the G1 lettings, the choice is beginning to become restricted.  It is still very much a tenants' market, but the balance is shifting back towards landlords - though this depends on the individual circumstances of the landlord and the property in question."

There was a notable easing of the weight of money in the investment market in Q2. Prime yields for Glasgow offices are assessed to have moved out 25bps to 6.00%, while a pricing differential for anything other than 100% prime has become apparent, despite the ongoing shortage of opportunities.

"Unless there are more numerous and aggressive requirements, prime asset values may undergo a small correction, while the pricing of good quality secondary assets that have narrowed the yield gap with prime is likely to be most affected," said Ben Clarke.