Vacancies hold up
Edinburgh office market ‘able to withstand slump’
Baillie Gifford’s new head office in Haymarket
Edinburgh’s office market is capable of withstanding the first recession in 11 years, according to new analysis.
The vacancy rates for all grades of office space across the city likely to remain less than half the level it registered in 2010.
However, the figures are influenced by a lower supply of offices, some of which are likely to be delayed, further restricting the space available.
Knight Frank says the Edinburgh vacancy market is unlikely to exceed 8.5%, less than half the rate registered in the aftermath of the financial crisis just over a decade ago.
In 2008, the vacancy rate for Edinburgh offices stood at 12.5%. A further 638,000 sq. ft. of space was added to the pipeline over the next two years which, combined with businesses relinquishing accommodation, led to a vacancy rate of 17.5% in 2010.
By comparison, the current vacancy rate sits at 6.3% and just 183,000 sq. ft. is scheduled for completion over the next 24 months, some of which will likely be subject to delays.
Knight Frank said this should keep the vacancy rate below 8.5% – notwithstanding a sudden deluge of occupiers forfeiting leased space.
A number of companies, including Pwc, have already indicated that they will be encouraging more home working and some have said they will relinquish office space.
Keith Skeoch, CEO of Standard Life Aberdeen, said recently that there was “gloom” around the property sector and confirmed that the company’s head office in Edinburgh will operate at 40% capacity.
Knight Frank found that occupiers are still looking for around 500,000 sq. ft. of space, with around 417,000 sq. ft. of Grade A accommodation available.
The first half of the year saw 136,000 sq. ft. of space transacted – heavily weighted to the first quarter, prior to Covid-19’s impact – with re-gears accounting for the majority of activity.
One of the biggest deals of recent years was announced last month with Ballie Gifford agreeing to pre-let 280,000 sq. ft. at the Haymarket Edinburgh development for its new headquarters.
Toby Withall, office agency partner at Knight Frank Edinburgh, said: “Despite uncertainties in the wider economy, with the UK officially entering recession for the first time in more than a decade, there are reasons to be optimistic about Edinburgh’s office market.
“The volume of demand has remained robust, while the supply of new space remains relatively scarce and the development pipeline has been stunted by the effects of Covid-19.
“The Baillie Gifford pre-let at Haymarket is a major vote of confidence in Edinburgh and there are signs that the wider market is beginning to thaw as well, with deals approaching conclusion and new viewings taking place within government guidelines.
“Many of the live requirements that were issued before lockdown were paused, rather than abandoned altogether, and there are tentative signs that many of them will begin to progress again.
As businesses begin to look at returning to the workplace, there are reasons to feel positive– Toby Withall, Knight Frank
“We have even seen some occupiers rekindle deals that were shelved during the height of the pandemic, as they begin to take a more positive stance.
“Of course, the situation is continually evolving but, as businesses begin to look at returning to the workplace, there are reasons to feel positive.
“It is, nevertheless, more important than ever that landlords and occupiers collaborate and regularly communicate as they adjust to new working patterns and operating models, with flexibility particularly important in helping both parties manage the challenges that lie ahead.”