After a couple of stand-out years for office take-up, it might be tempting to think that Edinburgh has seen its best days.
However, judging by the tail-end of 2016 and a strong start to 2017, there is still a long way to go yet.
The lack of supply doesn’t appear to be preventing deals
Sentiment remains strong in Scotland’s capital – big deals are in the offing and many occupiers are undeterred by the unpredictable political environment in which we find ourselves. It’s reminiscent of 2015, which turned out to be a record year with more than 1,000,000 square feet of take-up.
Last year’s figure of 760,000 sq ft across the city, while strong, belies just how much is going on. There is less than 200,000 sq ft of city centre Grade A stock available and in excess of 550,000 sq ft of live requirements. What’s more, there are only three schemes, totalling 185,000 sq ft, due to complete over the coming 24 months – as a result, demand looks likely to outstrip supply for some time.
Yet, the lack of supply doesn’t appear to be preventing deals. In fact, we believe that the first quarter of 2017 will be very healthy. Some notable transactions should conclude during what could be an outstanding start to the year, carrying on into the second quarter as well.
Among these deals will be a number of additional indicators, beyond take-up figures, of just how strong the Edinburgh market has become. We expect to see at least one pre-let, underlining the level of competition for the best space, as well as rental growth. Our current forecasts suggest a prime rent of £35 per sq ft could be achieved somewhere in the city centre by the end of 2017.
The source of this growth is predominantly twofold: activity in the professional services and technology, media, and telecommunications (TMT) sectors.
Within the former, the legal sector is particularly interesting: mergers, downsizing, and expansions at different firms are all happening simultaneously, with a direct impact on occupational activity.
Meanwhile, TMT firms not only accounted for the largest deal of 2016, with Cirrus Logic taking 70,000 sq ft at Quartermile 4, but acquired nearly a third of the total amount of space transacted in Edinburgh. These businesses were also responsible for four of the ten deals over 10,000 sq ft agreed in 2016.
With companies still emerging from Edinburgh’s tech hub, CodeBase, and another incubator facility being mooted, there’s reason to believe more is to come from the city’s burgeoning tech scene. When these companies take space, they tend to grow and expand at a rapid rate – just look at the likes of Skyscanner and FreeAgent in recent years.
Of course, as I alluded to at the beginning, Edinburgh doesn’t exist within a bubble and external factors remain front of mind for many of its businesses. Uncertainty has become the new normal and many are coming to the realisation that they need to continue with their plans for growth and investment, instead of waiting for things to settle.
For occupiers looking at space in the city, they’ll need to consider carefully what the upshot of all of this will mean for them. Rising rents and a lack of available space will force many to consider locations beyond the city’s core, where they may find more affordable accommodation and flexibility.
Nevertheless, after a couple of stand-out years, there is still more good news to come from Edinburgh – particularly in the foreseeable future. A sting in the tail aside, all the dynamics are in place to make it another significant year for the office market in Scotland’s capital.
• Toby Withall is office agency partner at Knight Frank in Edinburgh