Continued uptick in lease renewals as Scotland’s grade-A office supply dwindles

A lack of flexible, sustainable office space has caused an increase in lease renewals in both Edinburgh and Glasgow, according to new data from property services firm JLL.

In Edinburgh, economic uncertainty and limited choice meant that lease renewals reached a record high of more than 350,000 sq ft in 2022, driven by a ‘wait and see’ mentality for many occupiers.  

Compounded by return-to-work challenges, this trend has continued into 2023 with almost 100,000 sq ft of regears completing this quarter, equating to over 40% of all activity. Most of this activity consisted of extensions of less than two years.

Total take-up across the city and surrounding areas hit 123,000 sq ft in Q1, down slightly on the figure of 140,000 sq ft seen across the same period in 2022. However, JLL reports that several occupiers have spent Q1 organising and preparing their internal real estate strategy for the coming months. The firm therefore anticipates good demand over the next few months, especially for best-in-class stock, with headline rental levels set to reach over £42.00 per sq ft.

The figures tell a similar story in Glasgow, where 60,000 sq ft of take up in Q1 was accompanied by a further 35,000sq ft of lea renewals. Despite no Grade-A deals completing and only two deals over 5,000 sq ft progressing, several larger Grade-A transactions are now under offer and the outlook for the rest of 2023 looks promising as occupiers begin to commit to long term re-occupation plans.

According to JLL’s ‘Big Six’ research, which tracks office take-up, vacancy rates and grade A rental growth across Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester, the city recorded the second lowest new grade A vacancy rate across H2 2022, with only Edinburgh recording a tighter supply.

However, total vacancy rates remain high, indicating that the current supply of office space requires an overhaul to meet tenant standards. 

Cameron Stott, Head of Scotland at JLL in Edinburgh, commented: “As an increasing number of tenants look to secure sustainable office accommodation in the city centre, and with a slim pipeline of new office space on the horizon, Edinburgh’s office market continues to be defined by high levels of competition compounded by a critical lack of supply, with several construction projects yet to begin.

“We’re looking forward to continuing to support the city’s landlords as they seek to address this supply shortfall with top-quality developments.

Alex Mackay, Senior Surveyor at JLL in Glasgow, said: “We are seeing competition from occupiers for prime space, yet there remains a significant surplus of available office space across the city that currently fails to meet firms’ changing requirements for future working.

“As hybrid working increasingly becomes the norm and sustainability remains a top priority, landlords of older stock should focus on refurbishment projects prioritising the best possible ESG accreditations to ensure they are in the best position to attract the highest calibre of tenant.”