The next two years will be an interesting period for office refurbishment opportunities in Edinburgh as ever more occupiers, driven by lease events and expansion and diminishing Grade A stock, show interest in characterful refurbishments in the late £20s to early £30s per sq ft rental range.
Edinburgh’s level of availability has been steadily diminishing since its peak in 2008, but fell sharply in Q1 2016. Strong occupier demand, lower than normal levels of development activity from 2008 to 2014 and a bulge in both lease expiries and inward investment has left only 2.1 million sq ft of office space available across the city centre and out-of-town markets. Of that, only 365,000 sq ft is Grade A.
As a result, prime headline rents have reached £32.50 per sq ft. While these levels are still affordable for larger corporate occupiers and inward investors, longer standing, indigenous occupiers are starting to look towards more affordable refurbishment opportunities.
Edinburgh saw 350,000 sq ft of Grade B office take-up during H1 2016, accelerating the increases already seen over the previous two quarters, illustrating the increasing appetite for refurbished space in the mid £20s per sq ft rental range.
But changing sentiment towards what makes an office desirable may also be contributing to the popularity of refurbished space. Demand in Edinburgh is largely a result of the further expanding banking and financial services sectors, as well as continuing steady growth in the TMT sector. While the former continue to want large floor plates and traditional Grade A specifications, businesses in the tech sector may consider non-traditional office space, and we are seeing requests for ‘quirky’ offices with stripped- back, ‘de-furb’ fit outs. Space like this already exists in London and other cities and we believe we will see more of it in Edinburgh as forward-thinking landlords refurbish offices to cater for demand.