Commercial property: Office occupier market gears up for new year

On paper, 2019 was a solid year for take up across Edinburgh’s office occupier market. A total of some 650,000sq ft was transacted, which is about 5 per cent off the ten year average.

Yet, it’s worth pointing to some of the contributing factors which, when considered fully, indicate that Edinburgh’s occupier market is in rude health and prime for further growth in 2020.

It is fair to say that 2019 was a year like no other, yet at the same time it had a familiar feel. Occupiers contended with the same cocktail of factors that the market has been dealing with for the best part of a decade – political uncertainty, a lack of choice, and growing rents.

Occupiers were certainly more nervous about short-term economic prospects last year, due to Brexit and the general election.

That type of uncertainty knocks confidence, which is unquestionably bad for business. This led to many relocation decisions in Edinburgh being put on hold.

Another factor was a lack of choice. For years, the city has been crying out for more space to house the abundance of exciting occupiers who are flocking to the Capital.

This has been further exacerbated with the continued loss of second-hand office space to alternative uses, such as hotel or residential. More than one million square feet of office stock in Edinburgh has been lost to alternative uses over the last five years.

The city has clearly continued to prosper, with a burgeoning tech sector and a resilient and strengthening financial industry. However, this growth could be put at risk with the lack of business space for the whole spectrum of firms attracted to the Capital, from incubator to established names.

With less choice, rents have increased, causing more decisions to be put on hold during lease events.

This combination of factors resulted in a dramatic rise in re-gears across Edinburgh. Last year, there was approximately 275,000sq ft of re-gear transaction in more than 26 deals – a 45 per cent increase on 2018, compared to the five-year average of approximately 200,000sq ft in 23 deals per annum.

Some notable re-gears included Citi at Holyrood Park House, Aecom at Tanfield and JPI Media at Orchard Brae House.

Some quality office space is available, including floor space in prime locations such as 40 Princes Street and 10 George Street, but a lack of it is the issue.

Looking ahead, the next major new-build completions in Edinburgh are Capital Square by BAM (54,000sq ft remaining) early this year, New Fountainbridge by Vastint (60,000sq ft) in late 2020, with Haymarket 1 (110,000sq ft) the following year.

Haymarket is a prestigious mixed-use development by M&G Real Estate and Qmile Group, which will deliver about 380,000sq ft of new offices on full completion.

All considered, 2019 should be remembered as a year which performed particularly well, despite the odds stacked against it.

We can only hope that in 2020 we begin to see choice increase – and the previous decade of doubt begin to wear off.

Craig Watson is a director at commercial real estate services firm JLL in Edinburgh.