Best 12 months since 2001
Edinburgh office market tightens after strong year
Office occupier take-up in Edinburgh was at its strongest in 2015 for more than 15 years amid a growing shortage of good quality space, according to property consultancy JLL.
Approximately 950,000 sq ft was transacted, up 8.6% on the previous year’s 875,000 sq ft and significantly above the five year average of 650,000 sq ft.
The final quarter of the year saw 330,000 sq ft let, which was more than 15% higher than the previous quarter. JLL was involved in 82% of floor space transacted in the capital.
In Q4 there were eight deals in excess of 10,000 sq ft with 55% 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, the figures confirm earlier data that Edinburgh’s fast growing technology industry played an increasingly significant role.
West Edinburgh was also a beneficiary with take up levels amounting to more than 15% of the capital’s total (37% in Q4), mostly driven by expansion from existing occupiers.
Grade A transactions across the city during 2015 amounted to 395,511 sq ft with JLL involved in 59% 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 fantasy games company Fanduel at Quartermile 4.
The lack of availability is no longer 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 continue to tighten. The balance (circa 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% and will only be bolstered once the next wave of developments is completed towards the end of 2017.
Ben Reed, Regional Director at JLL said: “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.”
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 eight 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.