Edinburgh and Glasgow see office lease renewal surge amid 'wait and see' mentality

A lack of “flexible and sustainable” office space has led to an increase in lease renewals in both Edinburgh and Glasgow as more firms stay put, new research suggests.

Commercial property consultancy JLL said that In Edinburgh, economic uncertainty and limited choice meant that lease renewals reached a record high of more than 350,000 square feet in total in 2022, driven by a “wait and see” mentality for many occupiers. Compounded by “return-to-work challenges”, the firm said this trend had continued into 2023 with almost 100,000 sq ft of re-gears completing this quarter, equating to more than 40 per cent of all activity.

Total take-up across Edinburgh and surrounding areas hit 123,000 sq ft in the first quarter of this year, down slightly on the figure of 140,000 sq ft seen across the same period in 2022. However, property experts noted that several occupiers have spent the opening months of 2023 organising and preparing their internal property strategy for the coming months.

Cameron Stott, head of Scotland at JLL in Edinburgh, said: “As an increasing number of tenants look to secure sustainable office accommodation in the city centre, and with a tight pipeline of new office space on the horizon, Edinburgh’s office market continues to be defined by high levels of competition compounded by a critical lack of supply, with several construction projects yet to begin. We’re looking forward to continuing to support the city’s landlords as they seek to address this supply shortfall with top-quality developments.”

JLL found a similar story in Glasgow, where 60,000 sq ft of take up in the first quarter was accompanied by a further 35,000 sq ft of lease renewals. Despite no Grade-A deals completing and only two deals over 5,000 sq ft progressing, several larger Grade-A transactions are now under offer and the outlook for the rest of 2023 is said to “look promising” as occupiers start to commit to long-term re-occupation plans.

Alex Mackay, senior surveyor at JLL in Glasgow, said: “We are seeing competition from occupiers for prime space, yet there remains a significant surplus of available office space across the city that currently fails to meet firms’ changing requirements for future working. As hybrid working increasingly becomes the norm and sustainability remains a top priority, landlords of older stock should focus on refurbishment projects prioritising the best possible ESG [environmental, social and governance] accreditations to ensure they are in the best position to attract the highest calibre of tenant.”

Meanwhile, fellow property advisory firm Lismore Real Estate Advisors is forecasting growing interest in prime city centre offices, particularly well-let regional offices in cities with limited supply such as Edinburgh. Lismore director Colin Finlayson said: “Across Scotland, city centre offices show the greatest occupier demand, with potential for refurbishment/repositioning. To stay relevant in the market, retain existing tenants and achieve rental growth, owners of existing assets must invest in improving their ESG credentials and amenities. These improvements are also necessary to maintain liquidity in the investment market.”

The firm said Edinburgh was benefitting from a broad base of occupier demand, with financial and professional services particularly active currently.