Landmark Edinburgh office deals create record-breaking half-year yet overall market remains sluggish, say property experts
The biggest office leasing deal in Edinburgh for more than 20 years has helped generate a record level of half-year occupier activity, despite the General Election slowing decision making across certain sectors and pockets of the market, according to new research from JLL.
Office space taken in Edinburgh during the first half of 2017 reached over 770,000 sq ft, the highest half year in the past ten years, with JLL involved in 65% of activity. Around 550,000sq ft was transacted in Q2 (April-June) alone. The half year total marks a 32 per cent increase on the 530,000 sq ft transacted during the first half of 2016.
JLL predicts the strong overall performance of Edinburgh’s office market during the first six months of the year to continue into Q3 with a number of other notable sized deals under offer.
A record quarter for big deals
A significant factor in the half year spike is the UK Government’s decision to locate a new c.190,000 sq ft UK Government Hub at New Waverley in Edinburgh City Centre. The biggest single office leasing deal in Edinburgh for over twenty years, the move will involve the relocation of around 2,900 full time civil servants into the Grade A city centre premises in 2020. The UK Government Property Unit, advised by property consultants JLL, is overseeing the deal for the new Hub.
A second major deal during Q2 saw Australian financial services company Computershare recently announce plans to create 300 jobs at a new 40,000 sq ft technology centre within the building known as 4 North. The centre, on North St Andrew Street, is due to open next year.
Other notable deals include State Street Bank taking a pre-letting of 65,000 sq ft at Quartermile 3 and Nucleus Financial taking 20,000 sq ft at Greenside.
Election subdues the mid-market
Despite Edinburgh enjoying a record breaking half year, JLL has warned that the market for mid-sized occupiers within Edinburgh remains subdued, with many decisions delayed due to uncertainty surrounding the General Election. The election-effect has also been visible through a noticeable decline in enquiry and viewing figures during Q2.
Growth in tech requirement continues…
Edinburgh’s booming TMT (technology, media and telecom) sector shows no signs of slowing, with a noticeable increase in the proportion of new enquiries from serviced office providers, keen to expand their co-working offerings within the Capital. JLL notes that this newer type of product coming to market is much more suited to younger tech-start-ups with a typical requirement of sub 5,000 sq ft and a reluctance to sign long leases.
Short supply could be costly for city
Computershare’s expansion in Edinburgh shows the Capital’s draw, but JLL warns that the city must invest in new development as a priority if it is to continue accommodating new large multinational occupiers.
Without an increase in available refurbished or new grade A office space offering larger floor plates in modern specified buildings, the firm says there is real risk that footloose companies will turn to other UK cities.
NFU’s 80 George Street is one of the few comprehensive refurbishments due to complete in mid-2018 that can accommodate a requirement up to 40,000 sq ft, whilst The Mint Building, West Registers Street, totalling 60,000 sq ft, is one of only two schemes that will deliver new build offices, completing in Q4 2018.
Ben Reed, Regional Director at JLL in Scotland, said: “While the first half of this year will go down as a record-breaking one thanks to three significant deals, the statistics don’t necessarily reveal the true health of Edinburgh’s office market.
“This year’s snap General Election was predictably met with caution by the market, as it has done with previous votes. This hesitancy was clear, with a drop off in enquiries and a lack of urgency to finalise ongoing occupier transactions. Notably, there has been a slowing of requirements amongst mid-sized occupiers.
“As we move through Q3, we do expect to see another strong quarter as some larger deals are finalised. However, as has been the case in previous years, there continues to be a chronic lack of supply in both grade A and refurbished stock coming to the market over the next 18 months which could see activity at all ends of the market slowing due to a lack of viable options.”