“Perfect storm” brews in Edinburgh office market after strong 2016

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Edinburgh’s commercial property market remained buoyant in 2016 with office space take-up of 760,000 sq. ft. across the city, according to analysis from Knight Frank.

While occupational transactions were down on 2015’s figure of over one million sq. ft., which was the best for 15 years, it is still well above the ten-year average of 630,000 sq. ft.. Of the 760,000 sq. ft. taken by office occupiers last year, 620,000 sq. ft. was located in the city centre as businesses looked to secure space in the capital’s core areas at a time of low supply.

Overall occupational transactions in the city centre almost doubled to 135,000 in Q4 2016, from Q3’s 76,000 sq. ft.. Technology, Media, and Telecommunications (TMT) companies have held the top spot for the last three quarters in terms of activity; however, professional services firms acquired 47,000 sq. ft. of accommodation to become the main occupier for the final three months of the year.

Simon Capaldi, Associate at Knight Frank, said: “The last 12 months have been solid for Edinburgh offices. Occupational transactions have remained remarkably robust, even compared with 2015’s stellar year. In fact, it could have been even better: many businesses have adopted a ‘wait and see’ approach in response to the uncertainty seen in 2016, while a number of deals have carried over and should conclude in Q1 or Q2 of this year – it should be a strong start to 2017.”

By the end of 2016 there was under 200,000 sq. ft. of Grade A stock available in Edinburgh city centre, compared with in excess of 550,000 sq. ft. of named live requirements. With no new-build Grade A stock likely to come onto the market until early 2018, Knight Frank said supply and demand dynamics were likely to put pressure on rents.

Capaldi added: “There’s a perfect storm brewing, as supply levels near ten-year lows and demand continues to grow. A significant number of lease events are approaching, which could create a spike in new requirements in the next 18 months. The result will be rents moving upwards for some property types, particularly at well-located, Grade A offices with larger floorplates; while incentives are likely to come down at smaller units.

“It’s set to be a challenging period for occupiers: some could find they are squeezed out of the city centre by rising costs and will therefore need to look to the west of Edinburgh and other locations on the city’s periphery. However, some good quality refurbished office schemes, such as One Lochrin Square, are coming to the market in the window between now and the next set of new builds completing, which will provide much-needed accommodation.”