Edinburgh growth fears as city centre faces 'critical' shortage of prime office space

Experts say many obsolete office buildings being converted for alternative uses like hotels.

There are concerns that Edinburgh could be facing a lack of space for business growth.

A “critical” shortage of Edinburgh office space is likely to persist throughout 2024, property advisors have predicted, despite the post-pandemic transition to home and hybrid working.

New figures from property consultancy JLL show that total office take-up in the capital last year totalled 661,000 square feet, with the largest deal being Analog Devices’ lease of 28,000 sq ft at 2 Freer Street. This total represents an 18 per cent reduction compared to the ten-year average of 806,000 square feet.

A total of 168 new deals completed in 2023. While a slight improvement on 2022’s figure of 151, deal volumes are 16 per cent below the five-year pre-pandemic average, demonstrating that occupiers are still reviewing their options and delaying their relocation decisions, JLL noted.

As a result, headline rents in the city centre have grown from £40 per square foot at the end of 2022 to £43 - a 7.5 per cent year-on-year increase and 13.2 per cent up over the previous 24 months. JLL has attributed this to a shortage in supply of “best-in-class” office space.

It said strong demand for prime - or Grade A - space and growing concerns around inward investment was leading to apprehension that Edinburgh’s city centre might begin to inhibit business growth.

Hannah Done, associate director at JLL in Edinburgh, said: “It’s a hard-hitting fact that there is currently no availability of Grade A office space amongst Edinburgh’s build stock, and we anticipate that this trend will persist into 2024 without more speculative refurbishment from investors. Notably, a contributing factor to this has been the continued theme of obsolete office buildings - prime for office redevelopment - being converted for alternative uses like hotels, representing a big loss for the city’s professional sector and creating concerns for future prosperity.

“Without a step change in development intentions, this poses the city with a serious lack of space for business or enterprise growth. We’re likely to see pressure continue to grow on businesses to secure prime space far in advance of when they plan to move to avoid competition. Anecdotally, we’re seeing occupiers with leases expiring as far away as 2028 searching the market for opportunities which might meet their ESG targets and timeframes.”