Edinburgh rent-free periods to tighten, says Savills
There is 2.8m sq ft of available office space in Edinburgh, but Grade A space makes up only 25% of this total, says Savills. In its latest research into the market for Edinburgh offices, the firm says availability has continued to fall in the central business district and also in the out-of-town market, with tenant demand stable after the strong recovery seen in 2010. The vacancy rate of 12% is broadly in line with that seen in most key UK regional cities and only slightly higher than the current vacancy rate in the City of London, Savills notes.
While most lettings during H1 2011 were for below 5,000 sq ft in and around the central business district, a key deal was Amazon’s decision to take 57,000 sq ft over two floors at Highcross’s Waverley Gate. Savills says this deal reflects two new tenant trends that it has seen here and elsewhere in the UK – firstly, large businesses are showing an increasing desire to find modern, but cost-effective offices; and secondly, Amazon looked at several other cities before deciding on Edinburgh – the requirement was “fairly footloose”, Savills says. The firm says Amazon’s choice of Edinburgh has bolstered its view that, once the recovery starts, Edinburgh will be one of the stronger regional cities in the UK.
The Amazon deal took H1 take-up to 300,000 sq ft, which is slightly above last year’s H1 total. With only one major new development in the pipeline, Savills expects the supply of prime office space in Edinburgh to fall steadily during the next few years. There has been a pick-up in refurbishment activity, but “the best of these projects also remain fairly limited,” the firm adds.
“When office-based employment in the City returns to a net growth situation in 2012, the shortage of Grade A office space
in the market will become a driver of upward rental growth. We expect that rent-free periods will begin to tighten over the next six months, and by this time next year we will be seeing some selective upward movement in prime headline rents,” Savills says. The firm’s five-year annual average rental growth forecast has risen slightly, to 3.4% per annum.
