The Edinburgh office market will remain challenging throughout the second half of 2012 according to a recent report.
The BNP Paribas Real Estate office market review points to a number of factors contributing to this but, based on 2011 trends, predicts that take-up is likely to be up on last year.
Edinburgh is an important financial centre but despite its exposure to the effects of the international banking crisis, its economy has remained relatively stable. Figures show that over 4,000 new businesses have been recorded in the financial year to date.
In addition inward investment has also risen and is at a higher level than that of comparable cities including Newcastle, Norwich and Nottingham. Furthermore, large scale overseas investment is up by 33.3% on the previous financial year.
Among the businesses investing in Edinburgh are online retailer Amazon which took 57,400 sq ft of office space, Virgin Money which took 29,165 sq ft and software solutions company Avaloq Innovation which took 21,380 sq ft for a new Scottish development centre.
Although conditions remain challenging there are opportunities for anyone planning to invest in offices in Edinburgh. This is due to the restricted supply of Grade A office space which is driving demand and fuelling future rental growth. For this reason it is expected that take-up by the year end will be higher than last year.
At 479,040 sq ft, Edinburgh office take-up during 2011 was 20% down on the 2010 level of 596,300 sq ft. However this figure included a 97,000 sq ft deal involving Tesco. In contrast last year’s market was sustained by deals of 10,000 sq ft or less which accounted for 89% of all deals.
At the close of 2011 office availability stood at 3.1 million sq ft. This was 2% down on the previous year. Grade A supply in the city centre was just 350,000 sq ft.
In terms of development Edinburgh has the distinction of being one of the few UK cities with ongoing speculative projects despite the difficulties in obtaining finance in the current economic climate.
This includes the construction of a 185,000 sq ft development due to be completed early next year. In addition a 405,000 sq ft development in Haymarket is due to commence later this year.
When it comes to rental value, headline rents fell by 4% during 2011 and currently stand at £27.00 per sq ft. This is a reflection of last year’s reduced demand and remains broadly in line with those of other regional business centres like Birmingham, Bristol and Manchester.
Overall the Edinburgh office market is performing as well as can be expected given the difficult conditions of the past two years. Now, with rental growth anticipated, it could be a good time for investors and businesses to be looking at the availability of offices for sale and rent in Edinburgh.
