DTZ

07 January, 2011

Research carried out by global real estate services firm DTZ reports that Edinburgh’s commercial property market ended 2010 on a high note, with an increase in take-up of office space in the city. As an indication of the city’s economic prosperity, according to figures released this month by DTZ, take-up in 2010 for Edinburgh finished 20% higher than 2009 and just 10% below the five and ten year averages.

Take-up in the fourth quarter reached nearly 210,000 sq ft, which notably included the acquisition of 100,000 sq ft by Tesco Bank at EHQ, South Gyle. Other significant deals for the period October to December included Craneware’s relocation to Carlyle Group’s Tanfield (18,500 sq ft) and Baillie Gifford’s expansion into The Cube, Leith Street (25,000 sq ft).

Although there have been budget cuts, the public sector remained active, with COSLA relocating from Roseberry House into nearby Verity House, Haymarket Yards (16,000 sq ft). Positively, the number of deals during the fourth quarter was 10% above the average for this period and for a city underpinned by financial services, this employment sector saw good levels of activity throughout the year.

While 2010 proved to be an uncertain year, with a UK general election, budget cuts south of the border and for Edinburgh and the underlying uncertainty of the banking sector, DTZ believes that the recent period of falling rents and increased incentives has enabled occupiers to secure some of the best deals available over the past decade.

Mark Jones, Director of DTZ’s Office Agency team in Edinburgh, says: “There are definite signs that companies that are in a position to take advantage of current market conditions have done so, particularly where significant gains can be made. As an indicator, in 2010, companies acquiring over 10,000 sq ft of space doubled in number in comparison to 2009.”

The year ahead

Looking ahead to 2011, supply levels are expected to remain balanced, with limited releases of surplus accommodation and no new build space to be delivered until 2012. DTZ remains cautiously optimistic with reports that the financial services sector has stabilised and is now growing in parts. DTZ research also suggests that public sector cuts in Edinburgh will be some of the lowest in the UK, although uncertainty still exists around impending spending cuts following May’s Scottish general election.

Mark Jones continues: “Grade A supply levels will diminish through the course of 2011, which in turn will lead to diminishing incentive packages being offered by landlords during the course of this year. That said, headline city centre rents are likely to remain stable.

“Debt finance will remain difficult to secure for new build projects, which may lead to increased activity for pre-lets until new buildings are delivered. The release of public sector space, particularly within the city, will conversely offer significant refurbishment opportunities to the development market. Furthermore, we fully expect to see more distressed assets being bought and sold through the course of 2011. While there will be continued pressure on the public sector to rationalise its estate through co-location and improved efficiencies, the private sector is also facing a future hurdle, with the introduction of the proposed IAS17 accounting standard, which could see corporates changing their approach to commercial space by adopting shorter lease terms, or seeking to buy rather than let.”

Overall, DTZ expects to see a slight fall in total take-up for 2011 as a result of the contraction of the public sector, but remains positive on the continued emergence of the financial services sector, particularly with the likes of Virgin Money joining Tesco Bank as an expanding employer within Edinburgh.