Business Space

A look at the Edinburgh Office and Central Scotland industrial markets.

Office Market

Take-up of office space is on track for just over 700,000 sq ft this year, exactly in line with the long term average for Edinburgh. The latter part of the year has seen a pick up in demand with tenants reacting to the impending shortage of Grade A space in the city due to the very restrained development pipeline. 

Typical of this trend is the recent letting by our client PWC of 32,000 sq ft at Atria One in Edinburgh, leaving only 100,000 sq ft at the scheme. This is one of the few remaining options for tenants looking for large floorplates in prime Exchange buildings. 

The overall availability in Edinburgh remained stubbornly stable throughout the first six months of 2013, at 2.4m sq ft.  Based on an average annual take-up of 750,000 sq ft, this represents three years of supply - a level which is considered excessive.  However, the level of availability of Grade A space has continued to fall since the beginning of the year.  At the end of 2012 we estimated that only 15% of the available office space was at this level, and this has now fallen to 14% (334,694 sq ft), even with the addition of 26,000 sq ft due to the completion of 145 Morrison Street.  There is now less than 150,000 sq ft available of newly built Grade A1 property across the City. 

Rents

Our prediction at the beginning of the year, that prime headline rents in Edinburgh would reach £30/sq ft in the short term, has already been proved correct. This bring top rents in the City back to their previous peak, and sets Edinburgh apart from the majority of other regional cities in the UK where rents remain below their previous peaks.   

Away from the undersupplied prime core of the Edinburgh office market the rental story is very different.  Rents on Grade B and out-of-town space remain around £5/sq ft below their 2007 peak, with significant rent free periods on offer. 

Outlook

The prospects for both the leasing and investment markets in Edinburgh are framed by the word "undersupply".  The shortage of Grade A and A1 office space to lease in the CBD will ensure reduced rent free periods over the next six months, and put further upward pressure on prime rents in 2014.  It will take some time for the rest of the market to catch up, but we expect to see a rise in refurbishment and redevelopment activity next year as landlords move to capitalise on the burgeoning undersupply.

Industrial market

The market characteristics being experienced in England over the last two years have finally arrived in Scotland. Falling supply, no significant speculative development and improving demand is now evident.

2012 saw significant lettings of large speculative industrial units, which had been developed with the assistance of Golden Contract arrangements. This was a catalyst to erode supply and in 2013 there has been a substantial number of sales of large second hand distribution units continuing this trend. 

A return in confidence in the bulky retail market has resulted in new retailers expanding into Scotland and existing parties growing their operations. This has increased the need for strategically located distribution centres in order to service the new stores across the country and to address the demands of the expanding home delivery service required by customers. 

Savills advised CSL on its acquisition of 60,000 sq ft in the Pyramids at Bathgate. This distribution centre will service its new store, which has just opened at Abbotsinch Retail Park, Paisley as well as its new store, currently under construction, at Straiton Retail Park. In addition, Schuh has purchased 244,644 sq ft at J4 M8 to develop its European distribution network and Steinhoff, the owners of Benson for Beds, Harveys and Cargo, is looking to consolidate its various warehouses in Scotland into a central distribution hub.

As confidence returns and demand increases the new challenge is the lack of appropriate stock in the industrial market across Scotland. There is limited speculative development, other than by a few high net worth individuals or regeneration companies, and it is focused on the sub 20,000 sq ft size range. Clyde Gateway, in conjunction with SCOT Sheridan and  MEPC, is progressing with further speculative development at Clyde Gateway East. Fusion Assets, a joint venture with North Lanarkshire Council, is developing small units at Eurocentral and Keel Contractors, advised by Savills, is developing 42,000 sq ft of units at Righead Industrial Estate in Bellshill. The first 16,500 sq ft terrace has just been completed and interest is now stronger following completion. 

Large industrial development will not occur in Scotland at present without a pre-let. This was the same in England until recently, but now the main developers are building speculatively to try and capitalise on the demand. Scotland continues to remain behind England in terms of this trend however, as demand increases, we may see a similar pattern.

 
 

Key contacts

Keith Dobson MRICS

Keith Dobson MRICS

Director
Office & Industrial

Savills Edinburgh

+44 (0) 131 247 3801

+44 (0) 131 247 3801

 

David Cobban

David Cobban

Director
Office & Industrial

Savills Glasgow

+44 (0) 141 222 4101

+44 (0) 141 222 4101