2015-12-31-莱坊-Edinburgh_Office_Market_Report_2016_6页_570kb

Edinburgh Office Market Report Summary (2016)

Core Content

This report provides an overview of the Edinburgh office market in 2016, highlighting key trends in occupier activity, investment, and the broader economic and political environment. It emphasizes the city's growing appeal as a global investment destination, driven by strong fundamentals and a unique blend of historic heritage and modern development.

Main Points

• Global Appeal: Edinburgh's office market is gaining global attention, especially from overseas investors, due to its strong economic base and limited development potential in the city centre.
• Occupier Demand: Despite a slowdown in the first half of 2016, occupier demand remains robust, with total take-up at mid-year 15% above the long-term average. The Technology, Media, and Telecoms (TMT) sector is a major driver of demand, accounting for nearly one-third of all take-up.
• Rental Growth: Prime headline rents in Edinburgh reached a record £33.00 per sq ft in September 2016, marking a 16% year-on-year increase. Forecasts suggest rents could exceed £35.00 within the next 12 months.
• Supply Constraints: The city centre has limited development sites, leading to a low supply of Grade A office space. As of September 2016, only 265,000 sq ft of Grade A space was available, the lowest since 2012.
• Investment Activity: The investment market has seen a surge in activity, with overseas investors dominating. The Brexit vote did not significantly deter investment, as the weaker pound and perceived value of Edinburgh's assets continued to attract buyers.
• Development Pipeline: The development pipeline is expected to deliver around 520,000 sq ft over the next 24 months, with 76% of it speculative. Only 248,000 sq ft is currently under construction, and most of this is pre-let.
• Yield and Growth Potential: Prime yields in Edinburgh are at 5.25%, which is competitive compared to other European cities. This yield, combined with strong rental growth expectations, makes Edinburgh an attractive investment opportunity.
• Alternative Uses: A trend of converting traditional office spaces into alternative uses (e.g., hotels, residential) is affecting the availability of office stock, which may further limit options for traditional occupiers.
• TMT Sector Expansion: The TMT sector is expanding, supported by the city's universities producing over 1,200 computing-related graduates annually. This is expected to continue driving demand and investment.
• Political Uncertainty: The EU referendum and the potential for Scottish independence have created uncertainty, but Edinburgh's market fundamentals remain strong, and the city is well-positioned to thrive in the long term.

Key Transactions

• Cirrus Logic: Pre-let 80,000 sq ft at Quartermile 4 in Q1 2016, with an additional 15,000 sq ft committed.
• Peoples Postcode Lottery: 33,200 sq ft at 28 Charlotte Square in Q2 2016.
• CMS: 28,950 sq ft at Saltire Court in Q2 2016.
• Dialog Semiconductor (UK) Ltd: 13,650 sq ft at The Walk in Q1 2016.
• Baxters: 10,950 sq ft at 12&13 Charlotte Square in Q1 2016.

Investment Transactions

• Atria, Morrison Street: Sold for £105.25 million to DEKA Immobilien in Q1 2016.
• Lothian Road, 30: Sold for £93.75 million to an overseas client of HSBC in Q4 2015.
• Quartermile 4: Sold for £68.50 million to TRIUVA in Q1 2016.
• Gyle Square: Sold for £48.30 million to Greenridge Regional UK in Q2 2016.
• Fountainbridge, 150: Sold for £44.00 million to Trinova Real Estate Spain in Q1 2016.

Key Quotes

• Alasdair Steele (Managing Partner): "The importance of overseas buyers is increasing, with only one building over £20 million purchased by UK money in the last 12 months. Landlords will need to ensure they take this into account when formulating their development and letting strategy."
• Jamie Fergusson (Partner): "The current prime yield of 5.25% would suggest limited inward yield movement going forward, with future performance emanating predominantly from rental growth. However, this yield looks cheap in comparison to other major European cities making Edinburgh an attractive proposition."
• Toby Withall (Partner): "One third of Edinburgh's office take-up is made up of Tech companies. If this sector is to continue to be encouraged to grow in the capital, landlords need to better align themselves to flexible and collaborative working practices."
• Kenneth Brewster (Senior Surveyor): "Edinburgh is losing a significant proportion of its city centre office stock to alternative uses, such as hotels, serviced apartments and residential. This trend will further restrict the choice of traditional office occupants."
• Simon Capaldi (Associate): "West Edinburgh will continue to become a focus for occupiers and mixed use development, such as the dearth of suitable brownfield development opportunities in the city centre and the fast improving connectivity offered out of town."

Research Team

• Lee Elliott: Head of Commercial Research, Knight Frank
• Darren Mansfield: Associate, Knight Frank
• Alasdair Steele: Managing Partner, Knight Frank Edinburgh
• Jamie Fergusson: Partner, Knight Frank Edinburgh
• Toby Withall: Partner, Knight Frank Edinburgh
• Simon Capaldi: Associate, Knight Frank Edinburgh

Disclaimer

This report is for general information only and not to be relied upon in any way. Knight Frank LLP does not accept any responsibility or liability for any loss or damage resulting from the use of this information. Reproduction of this report without prior written approval is not allowed.