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Pressure on space

Conversion of offices into hotels ‘unsustainable’ warns agency

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Osborne House: the latest office conversion

A property agency has warned that the conversion of offices into hotels in Edinburgh is ‘unsustainable’ and could have a damaging effect on the city’s growth prospects.

Knight Frank’s concerns have emerged as permission has been granted to turn a 1970s block in the city’s west end into a 157-bed hotel with restaurant and bar.

York-based S Harrison acquired the four storey Morris and Steedman-designed Osborne House in West Coates last year. It is also converting former offices in St Andrew Square into a hotel for Malmaison Hotel du Vin Group.

Knight Frank’s Edinburgh 2019 report said that 720,000 sq ft of Grade B office space had been converted through planning for change of use while the lack of development land “has hindered the delivery of new office space.”

Just 338,000 sq ft of Grade A space is set to be delivered by the end of 2021, with 35% of that figure already let to occupiers. Grade A take-up has averaged more than 220,000 sq ft in the city centre over the past few years, underlining the strength and depth of demand from Edinburgh’s businesses. 

Knight Frank said that, while hotels and residential units are undoubtedly important for the city, a balance needed to be struck to stop the ‘unsustainable’ rate of conversion from offices.

Alasdair Steele, head of Scotland commercial at the agency, said: “Tourism has proved a double-edged sword for Edinburgh. Visitors coming to the city and spending money is great news for hotels and retailers, but it’s had unintended consequences for other sectors.

“The supply of office space is reaching perilous lows and rents continue to rise for space in Edinburgh’s core. At the same time, the city’s population is growing at a robust rate and, combined, these pressures are taking space from the business community at an unsustainable rate. 

“In time, this could prove to be a chokehold on the city’s growing companies – particularly those which would normally come out of serviced accommodation or incubators. Typically, they would look to take Grade B space, but with just 220,000 sq. ft. available in the city centre – only a third of what’s available in Glasgow – there is little to choose from.

“Local authorities in other parts of the country – such as Newcastle City Council – have found ways of encouraging development, with the public sector de-risking the process. Edinburgh’s planners could be more rigid by ensuring suitable city centre sites go to offices; however, it’s incumbent on everyone involved in Edinburgh’s property industry to come together and think of creative ways we can use the available land to its full potential.”

Local authorities in other parts of the country – such as Newcastle City Council – have found ways of encouraging development

– Alasdair Steele

With WeWork set to open its first co-working space in Scotland at 80 George Street, Knight Frank predicted that the company’s arrival would lead to a big change in Edinburgh’s office market and could act as a catalyst for other operators to set up in the city, with a number already showing interest. The independent property consultancy also said Edinburgh’s rapid expansion would see the city’s core area increase, with Haymarket and the West End the likely beneficiaries. 

Ann Scott, S Harrison’s managing director, said Osborne House is “the ideal location for a hotel” and said it has been largely unoccupied for the last three years.

She said the development will “not only create employment opportunities, but reinvigorate this tired old building and give it a bright new future. Our successful track-record for hotel development has been recognised by the local community and planners.”

Mr Steele said Edinburgh needs to consider how it handles the explosion of developments in the centre.

“Edinburgh has traditionally been very compact – but, if a city expands then its core, and the offering in terms of amenities and connectivity, should do likewise. Occupiers and their staff still want access to the amenities available in the city centre and overall wellbeing has become a real focus for employers. Quartermile is a great example of a site that has managed to become part of the city centre, offering a quality office environment amid a mixed-use scheme.

“The west of the Edinburgh is the most likely area to benefit from this change. While Edinburgh Park has traditionally been the pressure release valve for the city centre, Haymarket has done really well on the back of improved transport links. You could see this part of Edinburgh, and further westwards along the canal, becoming part of the central business district in the near future.”

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