Fifteen year high for office take-up in Edinburgh

Office occupier take up in Edinburgh during 2015 had its strongest year for over fifteen years, according to new research by leading property consultancy JLL.

Approximately 950,000 sq ft was transacted during the full year in the city, up 8.6 per cent from the previous year’s total of 875,000 sq ft. The total take-up for 2015 is at its highest level since 2001 and significantly above the five year average of 650,000 sq ft.

According to the analysis by JLL, the final quarter of the year saw 330,000 sq ft of occupier activity, up more than 15 per cent over the previous quarter, with JLL involved in 82 per cent of floor space transacted in the capital. In Q4 there were 8 deals in excess of 10,000 sq ft with 55 per cent of take-up focusing on the city centre. This compares with 21 deals over 10,000 sq ft for the full year (13 in 2014).

While the capital’s resurgent financial services sector continued to drive much of the transaction activity, Edinburgh’s fast growing TMT industry played an increasingly significant role. West Edinburgh was also a beneficiary of this stellar year with take up levels amounting to over 15 per cent of the capital’s total (37 per cent of Q4) much of which was driven by expansion from existing occupiers.

Grade A transactions across Edinburgh during 2015 amounted to 395,511 sq ft with JLL involved in 59 per cent of Grade A space transacted. The ‘hotspots’ in the market were in the sub 5,000 sq ft and above 30,000 sq ft size categories including a 59,000 sq ft  pre-let by Fanduel at Quartermile 4.

The lack of availability is no longer just restricted to the city centre which is helping to drive prime rents. Fully refurbished buildings on Edinburgh Park are now commanding over £19 per sq ft and with the anticipated rise in the number of pre-lets during 2016, quoting rents on the next wave of speculative city centre development will push through the £33 per sq ft barrier.

According to JLL, the supply of office space in Edinburgh will only continue to tighten. The balance (c 70,000 sq ft) of the only major speculative completion in 2016 at Quartermile 4 is already under offer to a tech business attracted by the close proximity to the University and School of Informatics. The vacancy rate of new Grade A is currently under 1 per cent and will only be bolstered once the next wave of developments is completed towards the end of 2017.

Predictions for 2016

Looking ahead to 2016, JLL predicts the following national occupier trends that will shape the letting activity;

·         HR and real estate objectives will increasingly converge. Access to talent will become an even more important driver of corporate real estate and location strategy. There is a talent paradox driving increasing competition for highly skilled labour with companies becoming much more forensic in the analysis of talent clusters. In Edinburgh, offices located near to the main transport nodes, including the new development at Haymarket, will experience strongest demand as they are accessible to a wider demographic.

·         Building and workplace design is fast emerging as a critical tool to support broader strategic objectives around talent attraction and retention. The next wave of development in Edinburgh will focus on providing ample welfare space for staff including shower, changing and drying facilities for cyclists.

·         The weighting of tech, media and disruptive digital industries has dramatically increased in most regional office markets. Edinburgh is no exception and is set to benefit in 2016 although larger occupiers will be challenged to find space in the current favoured locations close to the University.

·         More broadly, emerging technology is poised to impact building design and function.

·         After an 8 year wait companies will need to absorb the impact of lease accounting changes on their portfolios in 2016. All leases will come on to balance sheets, effectively inflating assets and liabilities.

Ben Reed, Regional Director at JLL said:

“After a record breaking year of activity in 2015, Edinburgh’s office market continued to surpass expectations with take-up achieving levels not seen for 15 years. Although this was clearly helped by an exceptionally strong Q4, the broader trend is of a vibrant and highly competitive office market, especially at the lower and upper ends  of the size categories. The issue for Edinburgh remains the same as it has been for the past four years, a critical lack of supply to meet increased demand. This is no longer restricted to the city centre and we will have to wait nearly two years for the next wave of developments. This is driving some occupiers to review their options well in advance of any current lease event, particular those looking for Grade A accommodation over 30,000 sq ft which is now scarce across the city.”