Edinburgh needs more floorspace
City growth is creating shortage of offices
Edinburgh’s growing economy is being threatened by a weak supply of office space which is adding to a shortage of industrial units.
JLL has predicted record office occupier take up in Edinburgh for 2015 and a fall in vacancy rates, placing more strain on supply across Scotland’s capital.
This coincides with new figures from Knight Frank showing that there is an undersupply of small industrial units in the city.
JLL has found that office occupier take up for the year to date is now at 605,000 sq ft and is set to significantly exceed the five year average of 650,000 sq ft. Vacancy rates in the capital have decreased from an 8% high in 2009 to 5.1%.
Jon Neale, head of UK research at JLL, is predicting a strong outlook for Scotland’s economy, with GVA growth of 2% for 2016 compared to 1.7% in 2015, driven by a number of factors including continued low interest rates and strong retail sales.
Favourable economic conditions have also paved the path for an increase in investment volume since 2008. In the first half of the year this hit £31 billion, the highest first half since 2004, and 10% above the previous peak in H1 2006.
Investment in property across the UK is characterised by the rise of overseas investment, which has accounted for 48% of all investment in the UK, compared to less than 20% back in 2004.
Cameron Stott, director at JLL said: “We’ve witnessed sustained levels of occupier demand throughout 2015, and with another anticipated drop in the availability of Grade A office supply in Edinburgh, demand looks set to outstrip supply.
“The development pipeline is becoming increasingly restricted, with new developments being pre-let well in advance of occupation. Coupled with increasing trends to convert cat B properties into hotels and residential developments, we’ve seen a significant drop in the levels of quality office space available in Edinburgh.
“JLL research suggests there is strong occupier demand for accommodation in the next two to four years which will be in line with the next wave of development, not expected to reach practical completion until late 2017.”
In Glasgow, headline office rentals have increased to over £30 per sq ft in 2015. Notably, three major office developments in Glasgow completed in 2015 – the first new build completions in over five years. The buildings, 1 West Regent Street, 110 St Vincent Street and St Vincent Plaza have already experienced strong letting activity.