Retrofitting office buildings across Scotland’s capital will be a key driver for growth in 2023, according to new data from commercial property firm JLL.
Year-end take-up, or new lettings, is expected to hit approximately 700,000 sq ft across Edinburgh in 2022; 80% of which is focused on the city centre. This is 13% below the long-term average of 805,000 sq ft for Edinburgh.
However, due to continued uncertainty, lack of sustainable products and limited choice, the number of existing leases that were renewed in 2022 reached a record high of more than 350,000 sq ft. When combined, the total transactional volumes in Edinburgh reflect an above average level of activity.
Occupier demand was largely driven by firms 'right-sizing', as employees returned to the office following the final Covid-19 restrictions coming to an end in April.
Occupancy levels rose from 38% at the end of 2021 to a high of 49% this month, with professional services firms seeing the highest occupancy levels and the technology sector experiencing the lowest.
Due to the increasing demand for city centre offices, prime rents are now established at £40 per sq ft, which reflects a 5% increase over the past 12 months. JLL expects prime rents to rise above £40 per sq ft in 2023.
To help plug the supply gap, the firm suggested that investors and developers need to consider refurbishing or retrofitting existing stock.
While construction costs remain high, high quality refurbished and sustainable office buildings are experiencing the shortest voids so those quick to react will reap the benefits.
Several of these refurbishment projects in the city are already in the pipeline, including New Clarendon (34,000 sq ft), Edinburgh One (88,000 sq ft), 30 Semple Street (57,000 sq ft), 2 Lochrin Square (25,000 sq ft), The Tun (10,000 sq ft) and Tanfield (21,000 sq ft).
Craig Watson, director at JLL in Edinburgh, said: “Despite lower-than-expected take-up levels, there are some key underlying fundamentals that give us confidence the office market will remain buoyant well into 2023.
“For example, while the choice for occupiers in the city centre remains critically low, investors and developers have an opportunity to create better spaces within the existing built environment.
“Despite wider economic turbulence, including the rising cost-of-living, rental growth is expected to remain strong,“ he continued, adding: “I’m confident that the office sector will be able to provide the flexible and sustainable spaces needed by occupiers and meet the increasing demand.”
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