Market proves resilient although Brexit begins to make its mark
Further to its ‘perfect storm’ warning earlier in the week, property consultancy JLL says office occupier uptake in Edinburgh is set for a resilient start to the year, with a number of key deals already on schedule to complete in the first quarter.
It claims that, with some larger deals slipping out of 2016 and into the first quarter of 2017, the final end of year take-up for Edinburgh was just above the 10-year average.
Around 779,000 sq ft, spanning 184 occupier deals, was transacted in Edinburgh during the full year, down 17% from 2015’s total of 940,000 sq ft, which was the highest on record for 15 years.
JLL was involved in 45% of the transacted space. In the final quarter of 2016, 211,000 sq ft was transacted, up from Q3’s total of 134,000 sq ft.
Notable occupier deals during the quarter included The University of Edinburgh’s purchase of the former fire station at 76 Lauriston Place totalling 34,130 sq ft, Ernst & Young letting 32,500 sq ft at Atria One and ST Microelectronics letting 21,530 sq ft at Tanfield.
Supply increased marginally from 4.4% in Q3 2016 to 4.8% in the final quarter of 2016 due to new tenant space being released at Atria One, 22 Haymarket Yards and in South Gyle.
But, take-up is only part of the story, as Craig Watson, director, Office Agency, JLL notes in his analysis of 2016 and predictions that will shape letting activity for 2017.
Brexit breeds caution
Watson said: “Office enquiries rose in the second half of 2016 following the Brexit vote, but the number of viewings fell during the same period, as businesses increasingly adopted a ‘wait and see approach’.
“While we have continued to secure new mandates since the vote, we have definitely noticed that decisions are taking longer. Increased due diligence has been a noticeable trend for some years, but it has intensified in recent months, leading to longer deal completion times.
“Businesses are finding it increasingly difficult to plan ahead for new recruitment and with doubts mounting around the future processes regarding the employment of EU nationals, lease flexibility will be high on the agenda for many occupier deals this year.”
Supply constrained as new Grade A in short supply
He added: “Looking ahead to 2017, despite continuing political and economic volatility, one thing remains certain. Supply of office space in the capital will remain extremely tight. Demand for Grade A space will continue to increase, placing additional pressure on the market, to a large extent sheltering Edinburgh from hesitancy created by Brexit.
“In terms of new supply, Grade A developments coming to market are few and far between, with only one due for completion this year at Quartermile3. Next year will see the completion of Semple Street in May and the Mint Building in summer which should act to alleviate some pressure. A key trend which we’re already seeing is a demand for refurbished property, with One Lochrin Square coming to market in Spring 2017 and Greenside later this year.
Edinburgh’s TMT sector set for take-up growth, as traditional sectors approach year with caution
“TMT is to be only sector showing sustained growth as professional services and Finance will tread very cautiously over next 18-24 months, with many looking to delay making decisions where they can. With this in mind, it’s likely we’ll see more lease renewals and re-gears as a result amongst occupiers who may want to delay making relocation decisions, unless they have no other choice or their building becomes obsolete.”