Edinburgh office market proves robust
Demand continued to outstrip supply during an unprecedented 12 months, writes Toby Withall
Edinburgh’s office market proved highly resilient during a challenging 2020, with takeup nearing 500,000 sq ft and demand remaining strong, according to analysis from my firm, Knight Frank.
Some 490,585 sq ft of office space was transacted last year, despite lockdown measures due to Covid-19. The figure compares to 650,000 sq ft in 2019, a drop of 24.5 per cent.
Baillie Gifford’s 280,000 sq ft pre-let at The Haymarket, announced in July, provided a significant boost for the city, bouncing back from a record low of 15,000 sq ft of take-up at the height of lockdown in Q2.
A new headline rent of £37.50 per sq ft was also set for central Edinburgh, despite the uncertain situation, rising from £35.50 in 2019.
Knight Frank’s rents remained generally steady, with anticipated downward pressure from “grey” space – previously occupied accommodation re-introduced to the market – yet to materialise.
Last year, a study by my firm projected the vacancy rate for office space in Edinburgh was unlikely to exceed 8.5 per cent – less than half the rate registered following the global financial crisis of 2008.
Demand remained robust in 2020, with some 500,000 sq ft of requirements still on the market as many adopted a “wait and see” approach.
A Knight Frank survey of occupiers in summer 2020 found that just 8 per cent believed they would need less space per employee on the back of Covid-19, while 23 per cent and 69 per cent said they would need more and the same, respectively.
Meanwhile, Edinburgh’s development pipeline remained severely restricted, with just 281,000 sq ft of new space under construction.
In all, the city’s office market performed remarkably well in 2020, given the wider economic context and lockdown restrictions. While the annual take-up figures are boosted by the pre-let at The Haymarket – a commitment of this size to the city is a shot in the arm in normal circumstances, let alone during a pandemic – they demonstrate the attractiveness that Edinburgh has for businesses even during times of extreme uncertainty.
Throughout the pandemic, the supply-demand dynamics that characterise the office market in Edinburgh have not particularly changed and, when organisations can return to offices and demand follows, we will likely encounter a shortage of brownfield and new development land. This could have an upward knock-on effect for rental growth.
While the great “work-from-home” experiment has accelerated workplace trends by ten years, it has also underlined the enduring role that offices have to play as a place for people to collaborate and socialise.
That said, landlords may find that while there is still strong demand, occupier requirements have evolved, and they are looking for more from their space.
Businesses are increasingly looking for quality, flexible offices that are fully furnished, cabled, and fitted – a “plug and play” option. Occupiers will need to move quickly to secure the limited supply of this type of accommodation. Toby Withall is a partner at Knight Frank
“Annual take-up figures demonstrate the attractiveness Edinburgh has even during times of extreme uncertainty”