Savills agent questions ‘knee jerk’ cuts in office space
Haymarket Edinburgh is under construction
A property agent has questioned the ‘knee jerk’ reaction of some companies to reduce their office space in the wake of the pandemic.
Mike Irvine, director in Savills office agency team in Edinburgh, says that while home working will remain a feature of working life for some time firms are “ill-advised” to make short term decisions.
A number of companies, including big financial services firms, have said they are reviewing their office requirements following a successful six months of having thousands of staff working from home. High street fashion chain Next said today that “the experience of having to work from home has opened our eyes to new and better ways of working.”
Keith Skeoch, who recently retired as CEO of Standard Life Aberdeen, last month said its offices will be working at no more than 40% capacity in the near future and that the shift to home working has caused “gloom” to descend on the commercial property sector.
Mr Irvine acknowledged the impact of the pandemic on work patterns, but believes the sector will rebound.
“It was no surprise that Q2 take-up in Edinburgh city centre was significantly below average levels as the Covid-19 pandemic caused take-up across all major UK office markets to fall,” he said in an update on the market.
“However, we are confident that once a level of certainty returns to the UK economy, occupier activity in Edinburgh will resume to more normal levels.”
He said reduced levels of take up are likely but rents on quality product will remain strong, given the constrained pipeline.
“There has clearly been an essential shift to greater home working during the pandemic and this is something that is likely to remain part of many occupiers’ workplace strategies post-pandemic.
“Our view is that it is still far too early to be able to assess the true impact of home working on businesses and that making ‘knee-jerk’ reactions in terms of reducing operational property is ill-advised.
“The true impact of significant home working on business productivity may not be felt for several months or even years.”
According to a new report from Savills, the UK regional office market (excluding central London and the South East) will see rents remain stable despite muted levels of take-up as a result of the Covid-19 pandemic.
This can be attributed to record low vacancy rates, which at present average just 7.5% across the Big-Six regional cities (Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester).
Savills research shows Edinburgh currently has the lowest supply of available office space in core Scotland (599,836 sq ft of which just 335,640 sq ft is Grade A) and the second lowest supply within the ‘Big-6’ regional office markets.
Current supply across the UK regions stands at 11.3 million sq ft (1.049 million sq m), 44% below 2009 levels. Consequently, the long term outlook for rental growth remains robust.
Savills’ analysis shows that historically Grade A rents are able to withstand downward pressure when the vacancy rate remains below 13%.
Forecasts suggest that the Big-Six cities will remain under this threshold until at least 2023. What’s more, it is unlikely that supply constraints will be alleviated in the short term with 61% of the development pipeline under construction already pre-let.