EDINBURGH’S office market has sprung back to life, with a string of major lettings leading to the strongest take-up of space since the 2009 property slump.
New industry research shows that 53 deals were struck in the city centre in the last six months, while 17 took place beyond the core of the capital.
The healthy level of activity included large-scale deals with investment manager BlackRock, which took space at the Exchange Place development, NHS Education and Skycanner, the online flight specialist.
Overall, take-up amounted to more than 35,000sq metres, a 16 per cent increase on the previous six months and the best outcome since the downturn in the closing months of 2009.
Despite the signs of activity, property experts have urged caution, saying the city’s occupier market remains “subdued” while a lack of new developments presents a concern.
The findings are highlighted in the 71st biannual Scottish Property Review, published by Edinburgh-based consultancy Ryden.
The study, which is due to be sent out to clients next week, details every major office, retail and industrial letting and investment deal over the past six months. It is seen as a trusted benchmark of the Scottish marketplace.
The report also notes that there has been a modest 4 per cent increase in the total supply of office space in the six months to October, with the stock boosted by the new Atria development next to the Edinburgh International Conference Centre and the release of further space at Exchange Crescent.
According to the research, a “number of office transactions are currently in legal hands”, which is likely to increase the pressure on the existing supply of high-quality “Grade A” space.
With financial institutions taking fright, few new-build projects have taken place in Edinburgh in the past three years.
Property agents have warned that the lack of choice could deter firms with large floor-space requirements from setting up in the city, while existing occupiers have limited opportunity to move to newer or larger premises.
Mark Robertson, Ryden’s head of consulting and author of the property review, said: “The up-tick in Edinburgh’s office sector is welcome, but the market is fluctuating within a narrow range and demand remains some way below what we would expect in a fully-functioning market.
“The next development cycle won’t get underway until the middle of this decade, meaning that any further upturn in demand for offices – most likely due to economic recovery and/or lease expiries – will face a diminishing choice of office space in the city.”
He said there continued to be downward pressure on rents but the squeeze on prime office stock meant incentives such as rent-free periods could be watered down.
The Ryden research comes as another agency, DTZ, notes that Grade A lettings in Edinburgh remain strong, despite a dip in take-up in the third quarter, compared to an “exceptional” Q2.
In its Property Times report, DTZ predicts that city centre office take-up for 2012 is set to exceed that of 2011, making it the strongest year of lettings since 2007. It forecasts static rents in 2012 with increases likely from next year.