A severe shortage of new office development in Edinburgh has led to a steep rise in rents on refurbished offices, according to Savills.
Rents on refurbished offices in the Scottish capital are expected to hit £32.50 per sq ft in the third quarter of 2017, closing the gap between refurbished and new build rents to a mere £1 per sq ft, the lowest level on record.
Savills said the rising cost of refurbished office space in Edinburgh will ultimately push rents on top offices in the city up further — with rents likely to reach £34 per sq ft by the end of 2017.
That would place Edinburgh alongside Manchester as the most expensive office market outside of London and the South East of England.
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, Savills said.
Of only two speculative office developments currently under construction, M&G’s Quartermile 3 near The Meadows now has just 7,000 sq ft of the 73,000 sq ft building available following a letting to State Street, while GSS Development’s 2 Semple Street (40,000 sq ft) will be available for occupation from the second quarter of 2018.
The Mint development in central Edinburgh, where construction is due to begin shortly, is rumoured to be pre-let prior to commencement, Savills said.
By contrast, Savills is predicting that Edinburgh’s office take-up across all grades will reach 750,000 sq ft in 2017 as occupiers turn to refurbished options.
Savills said real estate activity is driven by the city’s strongly-performing professional, scientific and tech sectors which are set to drive office based employment in Edinburgh to reach growth of 4% over the next five years, outpacing the Scottish average of 1.8%, according to Oxford Economics.
Savills said it is monitoring 580,000 sq ft of known lease expiries occurring between 2019 and 2021.
At the end of last year, Savills said rents on refurbished options had climbed to £30 per sq ft and new refurbishments including 1 St Andrew Square, recently launched by Standard Life Investments and attracting significant interest, could see rents reach £32.50 per sq ft by the third quarter of 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.”