Edinburgh currently has the lowest supply of available office space in core Scotland and the second lowest supply within the 'big-6' regional office markets. Total supply in Edinburgh city centre is 599,836 sq ft of which just 335,640 sq ft is Grade A.

Edinburgh’s historic city centre and tight planning regulations have seen Edinburgh’s development pipeline also remain fairly limited with 229,000 sq ft under construction completing between now and 2022. However, of that, 31% has already been let during construction resulting in there being just under 224,000 sq ft of space under construction that is available to let in Edinburgh city centre.

New research by Savills analysed average rents and vacancy rates across the big-six regional office markets.

It was found that since the global financial crash, falling vacancy rates have resulted in rental growth, and during this period, average Grade A rents have not fallen across the big-six markets when the vacancy rate has been below a certain level.

Savills has subsequently created a vacancy rate forecasting model to uncover whether vacancy rates fall below this threshold before 2023. The model factors in a number of conservative assumptions to reflect the current economic environment.

When the model is applied to Edinburgh’s market data it shows that despite the potential impacts of Covid-19 and any subsequent fall in occupier demand during 2020 and 2021, vacancy rates of quality city centre stock are still likely to fall to critically low levels. This presents an opportunity to speculatively develop new stock or refurbish existing buildings to take advantage of the supply shortfall in Edinburgh in order to meet the demand in the market.

There are currently a number of exciting schemes under construction in Edinburgh as well as future planned schemes. However, our model shows that there is still significant scope for further office development within Edinburgh city centre.

Outlook: Mike Irvine, Business Space, Edinburgh.

It was no surprise that Q2 take-up in Edinburgh city centre was significantly below average levels. The Covid-19 pandemic has caused take-up across all major UK office markets to fall below previous norms, with both UK regional and central London office take-up over 65% below their long-term Q2 averages.

It is therefore expected that the number of deals transacted in Q3 will also be significantly below what is typical, as there is still a high level of uncertainty in sentiment due to the ongoing pandemic.

In times of uncertainty, occupiers (and landlords) often delay making any long-term decisions. As a response to this, we may see a flurry of 1–2-year lease extensions in Edinburgh city centre. While landlords may have not previously been interested in offering this type of flexibility, in the current climate it can successfully suit the short-term needs of both landlords and occupiers.

However, we are confident that once a level of certainty is returned to the UK market, occupier activity in Edinburgh will resume to its normal level. While there are myriad views regarding the future of offices, one of the few consistent messages is that occupiers will continue to improve the quality of accommodation which is good news for those that refurbish or develop good quality stock.

If you have an enquiry regarding the office market in Edinburgh, please contact our Edinburgh office here

_{Read the articles within Spotlight: Scotland Offices below.}