JLL backs retrofit first approach for Edinburgh’s city centre offices
Retrofitting office buildings across Scotland’s capital will be a key driver for growth in 2023, according to new data from commercial property specialist JLL.
Year-end take-up, or new lettings, is expected to hit approximately 700,000 sq ft across Edinburgh in 2022, 80% of which is focused on the city centre. This is 13% below the long-term average of 805,000 sq ft for Edinburgh.
However, due to continued uncertainty, lack of sustainable products and limited choice, the number of existing leases that were renewed in 2022 reached a record high of more than 350,000 sq ft. When combined, the total transactional volumes in Edinburgh reflect an above average level of activity.
Occupier demand was largely driven by firms “right-sizing” as employees return to the office following the final Covid-19 restrictions coming to an end in April. Occupancy levels rose from 38% at the end of 2021 to a high of 49% this month, with professional services firms seeing the highest occupancy levels and the technology sector experiencing the lowest.
Due to the increasing demand for city centre offices, prime rents are now established at £40 per sq ft, which reflects a 5% increase over the past 12 months. We are expecting prime rents to rise above £40 per sq ft in 2023.
To help plug the supply gap, investors and developers need to consider refurbishing or retrofitting existing stock. Whilst construction costs remain high, high quality refurbished and sustainable office buildings are experiencing the shortest voids so those quick to react will reap the benefits. Several of these refurbishment projects in the city already in the pipeline include New Clarendon (34,000 sq ft), Edinburgh One (88,000 sq ft), 30 Semple Street (57,000 sq ft), 2 Lochrin Square (25,000 sq ft), The Tun (10,000 sq ft) and Tanfield (21,000 sq ft).
Craig Watson, director at JLL in Edinburgh, said: “It’s safe to say that it’s been an extremely interesting year. Despite lower-than-expected take-up levels, there are some key underlying fundamentals that give us confidence the office market will remain buoyant well into 2023.
“For example, while the choice for occupiers in the city centre remains critically low, investors and developers have an opportunity to create better spaces within the existing built environment. Those that can deliver the best-in-class, newly refurbished spaces are likely to let first, experience the shortest leasing voids and achieve the best rents. And it’s a similar picture in the west of the city. While available supply is more abundant, the deals we’ve seen this year focus entirely on the new or fully refurbished stock.
“Despite wider economic turbulence, including the rising cost-of-living, rental growth is expected to remain strong. I’m confident that the office sector will be able to provide the flexible and sustainable spaces needed by occupiers and meet the increasing demand. Tenant’s demands are evolving at an incredible pace, so with the backing of our knowledge and research we are on hand to support our clients on refurbishment projects in Edinburgh and ensure their office buildings are future-fit to generate best value.”