A leading property consultancy is predicting a "significant uptick" in prime headline rents in the Scottish capital in the coming two years as demand for Grade A office space continues to outstrip supply in the city centre.
JLL said the landlords in the Edinburgh office market need to adopt a more "proactive and creative approach" to dealmaking as tenants are increasingly demanding improved specifications in return for extended lease terms.
Many occupants are said to be agreeing short-term lease extensions to allow the narrow pipeline of Grade A developments to be delivered in the coming years. This led to 130,000sq ft of regears in the third quarter of this year alone.
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A total of 170,000sq ft was transacted in Edinburgh between July and September, 115,000sq ft of which was in the city centre. That took total take-up for the year to approximately 500,000sq ft, which was down on the five-year average for the same time period.
Activity is expected to increase before the end of the year, with a number of deals nearing completion.
JLL is advising occupiers searching for Grade A space to engage early with existing landlords, while owners are increasingly being encouraged to think creatively about changing occupant needs to drive interest in their stock. JLL noted there has been increasing demand for life science, medical, and knowledge sector-based requirements across Edinburgh.
Landlords are also working more closely with tenants to agree deals allowing for amortisation of the cost in delivering a fitout. This structure supports businesses that may be averse to high initial design and construction expenditure and the management of uncertain timelines for fit-out.
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“The shifting relationship between businesses and their office space has been a hot topic in recent years," said Hannah Done, director at JLL.
"Identifying and adapting to the changing needs of their tenants will be a key first step for landlords looking to future-proof their investments. This has been evident where landlords have more seriously engaged with providing fit-outs for incoming tenants.
She added: “Despite the growing shortage of prime space in Edinburgh it remains a city that businesses across all sectors aspire to call home. The city’s continued growth as a hub for business will be reliant on the ability of occupiers and landlords to work in tandem and create suitable options for those looking to relocate.”
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