Edinburgh Office Market Snapshot Q4 2023
Q4 Market Overview
The Q4 Edinburgh office market was characterised by 3 things – a clear return in confidence to the occupational markets, aggressive alternative use buyers taking advantage of continued negative office investment sentiment and further construction cost volatility.
The race for space is definitely hotting up as companies jostle for position and review potential options more than 3 years prior to a lease event. There is no doubt demand is ramping up with Q4 takeup the strongest since Q4 2022 – a trend we expect to continue throughout 2024.
Strong, proactive asset management has never been more important to retain existing tenants as they strive to meet ESG agendas whilst canny (predominantly private) investors are snapping up high yielding offices in good, improving locations (e.g Greenside) where rents are reversionary with strong re-letting potential.
Fortune favours the brave and anyone delivering good quality product into the city-centre market over the next 2 – 3 years will be rewarded with strong tenant demand, rising rents and hardening investor demand – the sentiment gap is closing.
Market Insights
"Disappointing news that another ‘stick on’ (we thought!) office refurbishment/extension is applying for a change of use to hotel. That being said, we are confident there are several buildings fully committed to a comprehensive office refurbishment, subject to securing the usual consents of course. Despite there being very few cleared sites in the city centre, we see the next few years being dominated by the repurposing of some excellent standing stock. Please see the pipeline overleaf for more information.
‘Carbon capture’ is a huge driver moving forward and securing finance for a speculative development ‘new build’ remains exceptionally tough – less so with repurposing. It is now a race to Practical Completion for the best ‘re-use’ stock, and increasingly a more obvious 100% pre-let market for the new builds. Our prediction is that many projects will also consider ‘core & floor’ as the best way to provide even more considered ESG focused product.”
Chris Cuthbert | | 07989 395 165
“A number of occupational sectors are performing very well with legal, accounting, wealth management, healthcare, life sciences, engineering and renewable energy the stand-out office performers, particularly in the city-centre market. Whilst consolidation remains prevalent in terms of footprint, an increasing number of occupiers are considering additional space to accommodate future headcount growth as higher numbers return to work, notwithstanding the accepted hybrid model.
To grow revenue, occupiers understand they must retain and attract the best talent with the workplace environment and ESG considerations central to that objective. With offices accounting for 7-10% of a company’s cost base, as opposed to the human cost at 60-70%, there is a hardening corporate imperative now “to pay what it takes” to secure the best space for the business. This in turn fuels rental growth. Some way to go but the “sentiment gap” is closing.”
Nick White | | 07786 171 266
“Within the last 6 months, £120m of office properties have traded hands in Edinburgh. This comprises 496,000 sq ft and reflects an average of £240psf capital value - not bad for a sector that is meant to be out of favour.
The completed deals comprise a variety of city centre multi-let properties, an Edinburgh park asset, Argyle House (a major redevelopment play) and some city centre office to hotel conversions. £240psf sounds attractive when measuring against the best of the best achieved pricing of c.£800psf, although is reflective of the current market and should allow office investors to refurbish stock, benefiting from rising rents / strong occupational demand. 23% of the deals done (in terms of floorspace) is destined to be hotels or serviced apartments…a trend which the city needs to be very careful about. Protecting its diversity is important.”
Stephen Kay | | 07971 809 226
“Service charges are an increasingly ‘hot topic’ as landlords and occupiers wrestle with volatile utility costs. Most deals in multi-occupied buildings now include a service charge cap, exclusive of utilities but subject to annual increases to RPI, as a fair position for both parties.
Self-contained buildings without service charges will prove increasingly attractive to occupiers given rising rents and a need to limit total occupational costs. These buildings are typically self-contained ground floor units or single townhouses - a market where we expect strong letting activity.”
James Metcalfe | | 07786 623 282
