A severe shortage of new office development in Edinburgh has led to a rise in refurbished office rents, which Savills expects to hit £32.50/sq ft by the end of Q3 2017. If that happens, it would close the gap between refurbished and new-build rents to the lowest level on record at only £1/sq ft.
New grade-A supply in Edinburgh stands at 345,000 sq ft, which is only enough to cater for one year’s worth of demand, according to Keith Dobson, a director in Savills’ office and industrial team in Edinburgh.
He cites two speculative office schemes under construction: M&G’s 73,000 sq ft Quartermile 3, due to complete in Q4 2017, which has just 7,000 sq ft available following a letting to State Street; and 2 Semple Street, a 40,000 sq ft office being delivered by GSS Development, which will be available for occupation from Q2 2018.
“The Mint Building in The Registers in the city centre, where construction is due to begin shortly, is rumoured to be pre-let prior to commencement,” Dobson adds. Savills’ forecast suggests Edinburgh’s office take-up across all grades will reach 750,000 sq ft later this year as occupiers turn to refurbished options.
“Activity is driven by the city’s strongly performing professional, scientific and tech sector, which is set to drive office-based employment in Edinburgh to reach growth of 4% over the next five years, majorly outpacing the Scottish average of 1.8%, according to Oxford Economics,” Dobson says. “In addition, we’re monitoring 580,000 sq ft of known lease expiries occurring between 2019 and 2021.”
“While Edinburgh’s office supply/demand imbalance is nothing new, the pressure on both has never been greater,” he adds. “Occupiers with upcoming lease events and those looking to expand in the city are facing a severe lack of options and rents on refurbished offices are rising as a result.”
[Pre-lets] could place Edinburgh alongside Manchester as the most expensive office market outside the South East
By August 2016, rents on refurbished offices had climbed to £30/sq ft - as achieved at InterGen at 81 George Street. Dobson says that new refurbishments - including 1 St Andrew Square, recently launched by Standard Life Investments - are attracting significant occupier interest, which could bump rents up to £32.50/sq ft by Q3 this year.
“The rising cost of refurbished office space will push rents on top offices in the city further, probably up to £34/sq ft by the end of 2017,” says Dobson.
“We also anticipate the market will see a number of pre-lets on the existing speculative developments as occupiers compete for the best space. This could place Edinburgh alongside Manchester as the most expensive office market outside the South East.”
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