Edinburgh’s office market remains structurally undersupplied. Average take-up volumes across the past five years have reached 623,000 sq ft and we forecast 2017 take-up to exceed this by at least 20 per cent. We have enough Grade A supply, circa 259,000 sq ft, to cater for around only one year’s worth of Grade A demand. With only 100,000 sq ft of speculative office developments under construction, this has the potential to push new build rents to £34 per sq ft for a top-floor suite in the city centre by the end of 2017.
What’s driving such a buoyant occupier market?
Edinburgh has a higher proportion of start-ups per 10,000 people than the UK average. These start-ups cluster within office ‘incubators’ before expanding into conventional office space on maturity. Skyscanner, Fanduel and Rockstar North are examples of home-grown tech companies which, together, now employ over 500 workers locally.
The city is also host to global occupiers, including Microsoft and Amazon, who are attracted to the relative affordability of talent, a lot of which is ‘spill out’ from the university – a leading centre for computer science. As the table below shows, the annual salary of a software development engineer in Edinburgh ranks 33 per cent lower than an equivalent role in San Francisco (taking exchange rates into account). With wages accounting for around 55 per cent of total business costs this can be a major driver when deciding where to locate.
Furthermore, Edinburgh is home to more FTSE 100 companies than any other UK city outside London, with large banking, insurance and financial services occupiers. With 7,100 office based jobs forecast in the city over the next five years, it’s no wonder Edinburgh is able to retain 42 per cent of its graduates.
This forecast alone suggests a need for over 700,000 sq ft of additional offices in an already undersupplied market. The question is: where in Edinburgh can meet this demand? There’s no straightforward answer, unfortunately, but there are ways to support the growth of Edinburgh as a global city and the Scottish capital.
As part of the recent £1.1 billion City Deal, UK and Scottish Governments are each investing £300 million into Edinburgh. With more capital invested in infrastructure, we can improve the accessibility of the city, opening up new pockets for commercial (and residential) development.
We will also see more activity in the out-of-town market, where the number of office leasing deals has already more than doubled between 2009 and 2016. In particular, we anticipate activity around Edinburgh Park as the airport expands, and development on sites in close proximity to the bypass with good connectivity. However these sites will also look attractive to residential developers and so competition will be strong.
Meanwhile new schemes such as 6 St Andrew Square, 4 North, New Waverley and Greenside, all of which are pre-let, along with 1 St Andrew Square, are creating a new east end office hub for the city, which will be strengthened further by the arrival of The Mint Building in Q2 2019. We expect this migration to go on as occupiers look to locate close the 850,000 sq ft of new retail and leisure space to be delivered at Edinburgh St James redevelopment (2020) the quality of the neighbouring amenity provision, which is becoming an increasingly important factor in attracting and maintaining staff.
Read more: Edinburgh: a global city in demand