Capital office market poised for jump in pre-let activity

● Industry experts highlight decline in availability of space ● Creative industry sector has boosted demand for offices

Edinburgh’s office property market is poised to undergo “a period of transformation” as demand for pre-lettings takes off.

Property experts have highlighted the low level of city centre supply, following a bumper year of take-up of office space.

While 2017 was characterised by a string of large deals and the acquisition of whole buildings, occupational activity retreated back to be focused on the sub-10,000 square foot market in the first quarter of this year.

Take-up in the opening three months of 2018 totalled 139,969sq ft, according to commercial property consultancy CBRE Scotland, all of which involved secondhand space. The largest single deal so far this year was for just over 23,500sq ft, in the out-oftown market.

Stewart Taylor, senior director in CBRE’S advisory and transaction services division, said: “Despite the lower level of year-on-year take-up in the first quarter, the trend to prelet will continue and due to the very low level of city centre supply, we are likely to see more below-the-radar transactions and more non-disclosure agreements signed as occupiers attempt to secure the best space without getting into a bidding war.”

In spite of lower levels of take-up, availability still continues to decline. By the end of March, the amount of space available stood at 1.07 million sq ft, down by just over 4 per cent since the end of 2017, and a decline of more than 14 per cent over the previous 12 months.

With continued low levels of supply, prime office rents have continued to push higher. By the end of the first quarter, deals were in negotiation on new build space at £33.50 persqft.

Taylor said: “Edinburgh is facing a real supply challenge and it’s not a short term issue. There are fewer development opportunities than at any point over my two decades of working in the city.

“The City of Edinburgh Council must be innovative and prepared to challenge long standing conventions over things such as height and the protection of commercial space to safeguard the city’s economic potential.”

He added: “Construction of The Haymarket development will commence and complete quickly. Its status and the market conditions are at last in tune and we will see significant office pre-lets.

“Like many UK cities, Edinburgh has witnessed sustained and healthy demand from the creative industries sector, accounting for an average of 19 per cent of take-up since 2010.

“This rivals the banking and finance sector in the city, traditionally seen as Edinburgh’s dominant sector.

“It is the creative industries sector though that has the potential to add greatest further growth to the city.”