A severe shortage of new office development in Edinburgh has led to a rise in rents on refurbished offices and by Q3 2017 we expect to hit £32.50 per sq ft. This closes the gap between refurbished and new build rents to the lowest level on record at only £1 per sq ft.
New grade A supply in Edinburgh stands at 345,000 sq ft, which is enough to cater for only one year's worth of grade A demand. Of the two speculative office developments currently under construction, M&G’s Quartermile 3 now has just 7,000 sq ft of the 73,000 sq ft building available following a letting to State Street (due to complete in Q4 2017) while GSS Development’s 2 Semple Street (40,000 sq ft) will be available for occupation from Q2 2018. The Mints, where construction is due to begin shortly, is rumoured to be pre-let prior to commencement.
By contrast our forecasts suggest Edinburgh’s office take-up across all grades will reach 750,000 sq ft in 2017 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 per cent over the next five years, majorly outpacing the Scottish average of 1.8 per cent, according to Oxford Economics. 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. 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.
At the tail end of last year rents on refurbished options had climbed to £30 per sq ft (Intergen at 81 George Street) and new refurbishments, including 1 St Andrew Square, recently launched by Standard Life Investments and attracting significant occupier interest could see rents reach £32.50 per sq ft by Q3 2017.
The rising cost of refurbished office space will ultimately push rents on top offices in the city further, probably up to £34 per sq ft by the end of 2017. 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 London and the south east.
Read more: Office Refurbishments in UK Regional Cities