Gap between refurbished and new build office rents in Edinburgh set to become lowest on record

A severe shortage of new office development in Edinburgh has lead to a rise in rents on refurbished offices, expected to hit £32.50 per sq ft in Q3 2017, closing the gap between refurbished and new build rents to only £1 per sq ft, the lowest level on record.

Commercial estate agents Savills’ latest data shows new grade A supply in Edinburgh stands at only 345,000 sq ft, enough to cater for only one year’s worth of Grade A demand.

Of only two speculative office developments currently under construction, M&G’s Quartermile 3 now has just 7,000 sq ft of the 73,000 sq ft building available following a letting to State Street (completing Q4 2017) while GSS Development’s, 2 Semple Street (40,000 sq ft) will be available for occupation from Q2 2018.

The Mints, where construction is due to begin shortly, is rumoured to be pre-let prior to commencement.

By contrast, Savills forecasts Edinburgh’s office take-up across all grades will reach 750,000 sq ft in 2017 as occupiers turn to refurbished options.

Savills says activity is driven by the city’s strongly performing professional, scientific and tech sector which is set to drive office based employment in Edinburgh to reach growth of 4 per cent over the next five years, majorly outpacing the Scottish average of 1.8 per cent, according to Oxford Economics. In addition, Savills is monitoring 580,000 sq ft of known lease expiries occurring between 2019 and 2021.

At the tail end of last year, Savills says, rents on refurbished options had climbed to £30 per sq ft (Intergen at 81 George Street) and new refurbishments including 1 St Andrew Square, recently launched by Standard Life Investments and attracting significant occupier interest, could see rents reach £32.50 per sq ft by Q3 2017.

Keith Dobson, director in the Scottish business space team at Savills, said: “Edinburgh’s office supply / demand imbalance is nothing new however the pressure on both has never been greater. Occupiers with upcoming lease events and those looking to expand in the city are facing a severe lack of options. Rents on refurbished offices are rising as a result and we are anticipating the market will see a number of pre-lets on the existing speculative developments as occupiers compete for the best space.”

Savills says the rising cost of refurbished office space will ultimately push rents on top offices in the city further, likely to reach £34 per sq ft by the end of 2017. This would place Edinburgh alongside Manchester as the most expensive office market outside of London and the South East.