Capital office market faces test matching bumper 2017 take-up

Edinburgh’s office market hit a 16-year high in 2017, it was confirmed yesterday, as property experts reiterated their concerns of a potential supply crisis in the city.

More than 1.1 million square feet of office space was transacted last year – a 40 per cent jump in activity compared with the final year-end takeup in 2016, and the first time the million mark has been surpassed since 2001, property consultancy JLL said.

The firm noted that it had been involved in half of all deals in the capital during the past year.

Total occupier take-up in 2017 was boosted by a number of large transactions. The largest deal of the year – the UK government’s decision to locate its HMRC hub to Edinburgh – generated a 186,500 sq ft pre-letting at New Waverley which will house some 2,900 civil servants by 2020.

Other notable deals include financial giant Standard Life Aberdeen taking 69,000 sq ft at 10 George Street and State Street leasing 65,628 sq ft at Quartermile 3.

The city’s reputation as an attractive destination for tech firms continued to grow, accounting for more than a fifth of all take-up. Australian financial firm Computershare took 41,395 sq ft at 4 North and Edinburgh-headquartered fintech firm Nucleus Financial moved into 18,750 sq ft at Greenside.

The year’s four largest deals were all pre-lets, highlighting the critical supply dynamic in the city. At the end of 2017, the vacancy rate had dropped to 3.8 per cent, from 4.8 per cent at the same point in 2016.

With a lack of speculative office developments in the pipeline, experts expect 2017’s record-breaking take-up figure to be difficult to repeat.

JLL director Cameron Stott said: “Regardless of any political uncertainty, it remains certain that supply of office space in the capital will remain extremely tight. In terms of new supply, only three new developments are on site to be delivered over the next three years, including Semple Street in 2018 and the Mint Building in early 2019.

“Edinburgh’s growth as a major commercial centre is severely hampered by a lack of new office space. Put simply, as demand continues to accelerate, supply has failed to keep pace. If the lack of speculative office development persists, it could act to limit the pace of economic growth and inward investment in Edinburgh.”

Director Ben Reed added: “In 2017, we once again saw [tech] occupiers encroach on the traditional office market, counting for over 20 per cent of all deals in the city.

“Over the next 18-24 months we expect this percentage to increase as tech occupiers take a greater share of the market.”