Retrofitting offices will drive demand say agents
Retrofitting office buildings across Edinburgh will be a key trend next year, according to new data from commercial property agents.
Year-end take-up is expected to hit 700,000 sq ft of which 80% has been focused on the city centre. This is 13% below the long-term average of 805,000 sq ft for the capital, according to JLL.
Because of continued uncertainty, lack of sustainable products and limited choice, the number of existing leases that were renewed in 2022 reached a record high of more than 350,000 sq ft. When combined, the total transactional volumes in Edinburgh reflect an above average level of activity.
Occupier demand was largely driven by firms “right-sizing” as employees return to the office following the final Covid-19 restrictions coming to an end in April.
Occupancy levels rose from 38% at the end of 2021 to a high of 49% this month, with professional services firms seeing the highest occupancy levels and the technology sector experiencing the lowest.
Due to the increasing demand for city centre offices, prime rents are now established at £40 per sq ft, which reflects a 5% increase over the past 12 months. JLL is expecting prime rents to rise above £40 per sq ft in 2023.
It says that to help plug the supply gap, investors and developers need to consider refurbishing or retrofitting existing stock.
This view is shared by CBRE which says “the appetite for properties that are newly developed or refurbished will remain high and we anticipate rental growth in the short term for the best buildings.”
Several refurbishment projects in the city already in the pipeline include New Clarendon (34,000 sq ft), Edinburgh One (88,000 sq ft), 30 Semple Street (57,000 sq ft), 2 Lochrin Square (25,000 sq ft), The Tun (10,000 sq ft) and Tanfield (21,000 sq ft).
Craig Watson, director at JLL in Edinburgh, said: “It’s safe to say that it’s been an extremely interesting year. Despite lower-than-expected take-up levels, there are some key underlying fundamentals that give us confidence the office market will remain buoyant well into 2023.
“While the choice for occupiers in the city centre remains critically low, investors and developers have an opportunity to create better spaces within the existing built environment.”
David Smith, managing director at CBRE in Scotland, said: “In Edinburgh, the short to medium term supply pipeline is a real concern – for Scotland’s capital to have this little future stock is an issue if we are seeking to attract new corporate occupiers into the city.
“There needs to be an enhanced strategic vision to offer clarity on the areas of growth for Edinburgh’s commercial activity over the next 20 years.”
The latest trends emerge as big technology companies, whose office requirements seemed immune to the pandemic, are now starting to shed space at their headquarters in London and around Europe.
Meta, the owner of Facebook, agreed to move into a refurbished 310,000 sq ft office at 1 Triton Square, near Regent’s Park, London on a 20-year lease. But since agreeing the deal it has announced 11,000 jobs cuts and confirmed this month that it would try to sublet the space instead.
Google’s parent, Alphabet, and the American software giant Salesforce are among the big tech firms also now looking to abandon some of their office space in London and Dublin.
Top five office deals for 2022 in Edinburgh were:
Anderson Strathern (21,500sqft)