Cause for concern over cost-effective office space

MARKET BRIEFING Hugh Rutherford looks at ways to counter the shortage of Grade B accommodation

It is becoming clear that Edinburghis running extremely short of offices, particularly in its popular city centre.

But while there is certainly a shortage of Grade A office space, there is also a problem with the lack of value-for-money Grade B office space, which is preferred by a high proportion of the city’s businesses.

Inthelasttwo-and-a-halfyears, some 800,000sq ft of city centre Grade B value-for-money stock has been lost to alternative, higher value uses such as serviced apartments, residential homes, hotels and student housing.

With many of the period townhouse office conversions also reverting to their original use as residential properties, this is leading to a double hit on this important sector of the edinburgh office market.

The city’s economy is developing a strong reputation in the growth of SME businesses and as a knowledge-based economy.

The types of organisations that are being attracted to edinburgh, or those which are developing rapidly from inherent small enterprises in the technology and creative industry sectors, are particularly keen on this Grade B space.

Organisations such as Codebase

NICK JUDGE

0 Demand is high for space in established office buildings such as Exchange Tower and Edinburgh University now fully occupy Argyle House, a late 1960 so ff ice building owned by Kennedy Wilson.

The company is also the landlord of Exchange Tower, a modern office development in Edinburgh’s prime exchange business district, at the junction of canning Street and Torphichen Street.

It is the tallest office building in the city, with 65,000sq ft of high quality open-plan office space over 13 floors. The property was constructed during the 1970 sand extensively remodelled in 2001.

Kennedy Wilson has just completed the latest extensive refurbishment, providing a new entrance, replacement and upgrading of services and installationof new shower facilities and common parts.

Nick Judge, director of asset management, Kennedy Wilson Europe said: “We spotted a real opportunity in the Edinburgh office market when we bought Exchange tower as part of a portfolio purchase.

“Our market research identified a critical shortage of Grade B office space, particularly within Edinburgh city centre, and the growing demand for this type of space due to its more cost-effective financial profile.”

It will be important for Edinburgh to protect key sites and buildings in the city centre for employment uses, as it is through growth of the economy that employment demand will increase.

Edinburgh’ s strong service sector economy means the availability of affordable office accommodation is key.

This type of space is also readily organisations. existing land lords who can get vacant possession of existing Grade B buildings, therefore, should be looking at the possibility of office refurbishment.

Such work is usually a less risky option – relative to new build development – has a shorter timeline, and requires less capital investment.

With office rental rates increasing in Edinburgh city centre and incentive packages diminishing, hopefully more owners of established office buildings will consider using them as offices instead of hotels, residential property or serviced apartments when they look at future options at the end of existing leases. sought after by foreign direct investment (FDI) requirements, which, in the past, edinburgh has been highly successful in attracting.

The benefits are that this type of accommodation is generally readily available quicker than new build, and fits in better with FDI organisations’ time scales, which are often much shorter than for existing established

“Our market research identified a critical shortage of Grade B office space”

Hugh Rutherford is a partner at Montagu Evans

KENNEDY WILSON EUROPE