Edinburgh office market performance for Q2 2022 revealed by CBRE
OFFICE take-up in Edinburgh totaled 87,168 square feet in Q2 2022, down 45% from the same period in 2021 and down 65% from Q2’s five-year average of 251,458 square feet squares. Despite this, the total support for the year to date is a good 206,094 square feet.
Encouragingly, with 789,275 square feet of occupant requirements in the pipeline, Edinburgh is still in high demand. The flight to quality accommodation also remains in the capital, with 35% of the surfaces negotiated in T2 classified as Grade A.
Actual transaction volume remains in line with previously forecast forecasts, and with 13 occupiers in the city revamping over 187,000 square feet, the city obviously still has some appeal. Notable regears included Scottish ministers’ 89,000 square foot space at Silvan House and Skyscanner pledging its future in Edinburgh’s Quartermile One by extending its lease.
The largest transaction of the quarter took place at Exchange Crescent, with Dukosi taking 12,000 square feet in a transaction in which CBRE was involved. Copenhagen Offshore Partners negotiated 5,318 square feet at the recently completed 10 George Street and Manor Estates took 5,073 square feet at New Mart Place.
The highest level of activity so far this year has been in the under 5,000 square foot market, with 56 deals equating to an 85% market share of all 2022 deals in the city. .
Despite modest take-up figures for the second quarter of 2022, supply has still fallen significantly as some properties have been taken off the market for alternative uses. At the end of June, office supply in Edinburgh stood at 1.83m², the lowest for nine months. Additionally, newly developed Grade A space remains at an absolute price in Edinburgh city center with just 31,423 square feet available, representing a vacancy rate of 0.17%.
Serviced office space also remains scarce in Edinburgh city center with various flexible operators at full capacity for the foreseeable future. Operators continue to seek space in Edinburgh city centre, however, due to a lack of large floor plates and a preference for management agreements, landlords continue to seek traditional leases.
This lack of prime office space in the city puts pressure on rents. Current demand is pushing rents to £40.00 per square foot, and this upward trend is expected to continue due to the lack of future development coming out of the land. At present, all office space under construction in Edinburgh is already fully pre-let.
Stewart Taylor, Principal, CBRE Edinburgh, said: “The Edinburgh office market recovery continues with support totaling 173,831 square feet so far this year and a high level of demand remaining for the best possible space. The market has also seen an unprecedented level of expectation, with occupants delaying their longer-term engagement due to both uncertainty about future space requirements and the lack of current Class A availability.”
“The flight to quality, a national trend, has been accentuated in Edinburgh by a sharp drop in supply and a limited pipeline. As occupiers increasingly focus on employee satisfaction and how the space contributes to their environmental goals, it was the best buildings that garnered the most interest with reduced focus on rent. Large-scale occupants know that to get the best space, they need to move quickly and early. Another factor putting upward pressure on new construction rents is rising construction costs, which will no doubt impact the development pipeline in each market.