Shift in demand

Pandemic sees ‘flight to quality’ in office market

Haymarket pub with offices
Grade A offices at Haymarket are among the few being constructed (pic: Terry Murden)

More than half of the office space transacted in Edinburgh city centre during the Covid-19 pandemic has been Grade A as the effects of the pandemic and employee benefits drive a “flight to quality”.

Property consultancy Knight Frank found that 56% of the office space let since November 2020 – when it was announced the first vaccine had been developed – was in the highest ranked category, compared to 21% Grade B and 23% Grade C. 

Knight Frank said that the figures backed up the view that occupiers were looking for best space available – to support corporate social responsibility aims and retain and attract talent. 

Technology, media, and telecommunications (TMT) companies accounted for nearly a quarter of take-up in Edinburgh during that time, followed by the finance and professional services sectors which accounted for 12% and 11% of take-up respectively.

The findings follow recent research from Knight Frank that highlighted the fact that all the new-build space set to complete in the Scottish capital during the next two years has already been pre-let.

However, Knight Frank also said that more than 230,000 sq. ft. of major refurbishment projects are set to be completed over the next two to three years and smaller occupiers are increasingly looking for flexibility in lease terms.

Daily Business recently reported research by CoStar showing that 10 million square feet of office space across Scotland is vacant, much of it in the lower grade categories and in many cases caused by companies upgrading or staff working from home.

Toby Withall, partner at Knight Frank Edinburgh, said: “When the dust began to settle from the immediate impact of the pandemic and business started to get underway again, it became clear that the way occupiers thought about their property needs changed.

“Many began looking at it as a strategic tool for attracting new talent and retaining existing teams, while also supporting their wider ESG – environmental, social, and corporate governance – goals.

“We have seen that play out in Edinburgh in the type of space that larger occupiers are looking for: high quality space with strong sustainability features and a focus on staff wellness, supported by access to a wide range of nearby amenities.

“These are particularly relevant to the tech sector, which has accounted for the largest share of take-up of any sector in the city since the pandemic began – but they are also increasingly prioritised by professional services, the finance sector and many others.

“With space matching that profile at a premium, there are other options for occupiers to consider, much of which can offer greater flexibility for smaller businesses – another key trend fuelled by the pandemic.

“Refurbishments can enhance the sustainability of older stock to accredited levels and, therefore, could be particularly well placed to absorb the demand from occupiers for functional space in which they can grow and contract as they require.”

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