A pre-let? In Edinburgh? On the surface, perhaps not as surprising as Monty Python’s discovery of genus felis horribilis in Africa.
While pre-lets have been more common in other parts of the UK, they don’t tend to come around very often in Scotland’s capital.
In fact, prior to 2015 there hadn’t been one in central Edinburgh for more than a decade – the last being law firm Tods Murray’s acquisition of 41,000 square feet in a pre-let deal at Edinburgh Quay 1, announced in 2004.
However, this has been a watershed year and the race is very much on for the city’s best office space. A number of high-profile, pre-let deals have been publicised in recent months, while other potential occupiers are actively seeking them out.
The not-yet-built Quartermile 4 encapsulates Edinburgh’s competitive office market perfectly: FanDuel has already taken 60,000sq ft and a further 70,000sq ft is under offer to Cirrus Logic. The building looks set to be spoken for this year, ahead of its planned completion in Q2 2016.
Some of this swelling demand can be put down to Edinburgh’s tech renaissance. Companies in the sector have let 166,628sq ft in the first nine months of 2015, making the sector one of the biggest occupiers in the city. In 2014 tech companies accounted for 34 per cent of total take-up; a statistic that’s likely to increase this year.
Combined with that is rising confidence in the capital’s traditional economic bedrock of professional services. A number of firms have significant outstanding requirements and are on the hunt for 30,000 or more square feet.
And while demand is rising, supply of quality office stock is diminishing – particularly in central locations. By the end of Q3, Grade A availability in the city centre stood at 263,951sq ft: its lowest for the year. With a further 80 requirements coming onto the market in the three months to October, that figure is only likely to continue on its downward trajectory.
This lies in stark contrast to recent years; office supply has mostly kept ahead of demand. Large-scale occupier requirements have also been few and far between. Market dynamics have now shifted fundamentally, and we’re only likely to see pre-lets become more common if demand remains at present levels. While the city centre has been the primary source of pre-let activity, deals are likely to follow in other parts of Edinburgh too – intensifying competition across the board. Locations such as Haymarket and West Register Street are possible sites for the next set of pre-let deals.
Those on the lookout for office space in the new year and beyond should keep these market pressures in mind as they look for alternatives to their current accommodation. Competition for commercial property may be good news for the overall Edinburgh economy, as more of the capital’s best space is snapped up before work has even begun.
But as pre-lets become much more common a sight in the city, occupiers will have to be quick off the mark to secure the office space they need.
• Toby Withall is office agency partner at Knight Frank