Scotland's capital must protect it prime office stock
Protecting Edinburgh's office space
The nature of work has evolved since the pandemic with hybrid and flexible working becoming more prevalent. Rather than diminish the need for office accommodation, for many occupiers these new ways of working have reinforced the need for a high-quality office environment to compliment hybrid working arrangements. Companies are now looking for well located, well-designed office space that fosters collaboration and innovation.
Edinburgh's central business district (CBD) has long provided this, particularly in key locations such as St Andrew Square, Exchange District and the West End.
Yet Edinburgh's office market remains constrained with a worrying shortage of prime Grade A space, which is subsequently impacting business expansion and relocation decisions. With a lack of new development, the case for refurbishment is strong with almost 40% of take-up in 2024 for refurbished office stock.
One example is Ardstone Capital's refurbishment of 24 St Andrew Square, on behalf of CBRE Investment Management and the Ardstone Regional Office Fund, which was 60% pre-let at practical completion demonstrating the continued strength of demand for this type of high quality space.
Significant competition
Despite this, and even against a backdrop of positive sentiment, office developers in Edinburgh face a significant challenge. Essentially, they are struggling to compete when it comes to acquiring vacant offices to either refurbish or redevelop.
Over the past 18 months, more than 220,000 square feet of prime office pipeline has been taken out of the market, all of which was sold for hotel conversion.
While this demonstrates the significant appetite from hotel operators and enhances the city's tourism appeal, it also raises considerations about maintaining sufficient prime office stock to support a dynamic economic centre. Especially as recent sales were not for tertiary-located offices, but prime sites that, if developed, would command top-level rents.
Savills sale of Edinburgh One, located on Morrison Street in the heart of the Exchange District, is a good example. It attracted strong interest from both office and hotel developers but ultimately sold unconditionally for hotel conversion.
Other instances include Capital House, 28 St Andrew Square, and 9-10 St Andrew Square. These are all prime locations that cannot be easily replicated, meaning businesses may need to start looking elsewhere. Ultimately, this highlights the importance of creating a planning framework that supports a well-balanced approach to development.
A Vision for the Future
At present, there is currently no specific planning policy preventing the conversion of office buildings. Although the National Planning Framework 4 (NPF4) assumes the retention of office buildings and encourages alternative uses where office space is deemed unfit for purpose, there is no explicit protection of prime space.
Introducing measures to safeguard strategically important office locations could help maintain a thriving business environment alongside the city's growing visitor economy. By fostering collaboration between local authorities, planners, developers and investors, Edinburgh can continue to evolve in a more balanced way that supports both tourism and business needs.
Additionally, if exit yields tighten for office developers, this will make them more competitive when bidding for properties. After all, the issue isn't a lack of appetite, as evidenced by the aforementioned sale of Edinburgh One.
Now, therefore, is the time for measures to be put in place to ensure Edinburgh remains a vibrant place to work, visit and invest.
Mike Irvine is a director in the Edinburgh office agency team at Eilidh Levein and a surveyor in the Edinburgh investment team at Savills
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