Edinburgh - so was 2020 the end of the office ?

As agents we review office transactions every three months, but it’s the end of year review which heralds most reflection and projection. For me, office activity acts as a barometer of the wider economy and business attitudes, providing useful context when we look to the year ahead. In doing so, we consider the supply/demand dynamics in the market; identify which sectors are growing or shrinking; consider national trends and their impact locally; establish if rents are rising or falling and what locations are ‘hot’ or losing popularity. Recent local trends have included increased levels of activity in West Edinburgh business parks; tech emerge as the most active sector and newer locations such as Quartermile becoming prime business addresses.

 This information shapes the evolution of new developments in terms of buildings, environment and locations as the market seeks to give occupiers and investors what they want in a constantly changing world.

 Change was certainly heralded almost overnight with the COVID-19 pandemic and its impact on business and the need for accommodation. Interestingly, several statements and projections were made throughout 2020 about offices and what the future office may look like. The initial negative stories grabbed the headlines but for me 2020 has brought many positives to a marketplace, which had been traditionally slow to embrace change, resulting in an escalation of a number of existing market trends including the following:

 1.      Tenants as customers

In a year of great turmoil and uncertainty, generally the relationship between Landlord & Tenant has improved. It had to during 2020, as many tenants agreed bespoke rent arrangements with their landlords to help cashflows and allow them to survive. That dialogue has extended and brought greater engagement between both parties, with landlords actively looking to incorporate tenant requests into how they operate and develop their buildings particularly around health and well-being.

 2.      The office is far from dead

Avison Young’s latest Big Nine Office Market analysis estimates 2020 take-up for Edinburgh City Centre was 473,000 sq ft, which is over 100,000 sq ft greater than in 2019 and 17% down on the 10-year average. In a year which saw only 11 transactions recorded in Q2 when the pandemic took hold of the country, that’s quite remarkable. Admittedly Baillie Gifford’s pre-let of 280,000 sq ft (Q3) accounted for a significant chunk of this take-up but that in itself is testament to the importance they place on offices, especially given the long-term commitment, which is a real positive endorsement for the city.

 During the first lockdown many big businesses openly renounced offices and heralded home working as the future. However, as time went on, many reversed or softened this position. The clients I engage with certainly want to return to their office as soon as it is deemed safe, albeit few want to return on a 5-day a week basis.

 3.      Quality sells

The drivers behind most 2020 office relocations have been ‘right-sizing’ and securing ‘best in class’ space. The war on talent is a key driver in real estate decisions and this is notable when analysing the take-up with a focus on prime spaces. As a direct consequence, 2020 actually saw an increase in Grade A take-up and an increase in Grade A rents.

 4.      Office Personality

Office lay-outs and finishes have been evolving with different sectors demanding different things for their staff and visitors; touchdown spaces, client lounges; collaboration zones becoming common along with exposed and industrial finishes. In a war for talent and looking for ways to encourage staff back to the office, the working environment will be key to achieving both goals. The need to nurture business culture and (for some) having areas for team working will result in unique office environments for staff. If staff have greater choice on where they work, their time in the office needs to be as positive and productive an experience as possible and lay-outs, finishes, health & safety should all be at the forefront of office design moving forward. 

 5.      Greater leasing options

There is much greater choice in terms of traditional and serviced office offerings as we see a hybrid between both options emerge. We are seeing shorter lease packages and more creative structures to secure tenants. This includes partially or fully fitted space, greater range of incentives and all-inclusive rents together with the provision of additional landlord services. Globally, this ‘flex’ market has evolved considerably (and continues to do so). In Edinburgh we are only just starting to see this wash through.

 6.      Sustainability

A key focal point for many years, but the pandemic has brought sustainability much more to the fore. While often considered a ‘nice to have’ before, the pandemic has made everyone (not just businesses) much more aware of their impact on the planet. Consequently, ‘sustainability’ is now increasingly driving real estate design, strategies, and property choices. This is on a number of levels from sustainable ratings; heating/cooling systems; building materials & staff travel options, to highlight just a few – of which there are many.

 7.      Greater focus on the Out of Town market?

The city centre has a restricted pipeline of new office developments coming through. This is partly why rents have increased across the centre. It has also led to greater redevelopment and construction in West Edinburgh, where there is a greater volume of buildings offering larger floorplates. 2021 will be interesting as some existing city centre occupiers could need to consider relocating West in order to identify buildings that match their brief. There is also an expectation the pandemic will encourage occupiers to look beyond city centres for offices too. The relocation of an established city centre occupier would be a real gamechanger for West Edinburgh and would likely be a catalyst for others to follow. The focus on out-of-town development will also benefit the city should decentralisation trends continue, given the excellent transport connections and amenity provisions in the area.

 There are of course many other drivers and influences but the above represent some key areas which will shape the post-COVID office world as workers start to return to their workplaces. I think it will be an era of more bespoke office spaces reflecting a more balanced model of home/office working which I believe should harness increased productivity and job satisfaction levels and help the UK address the productivity gap on other leading economies.

 So no, 2020 did not see the end of the office; 2020 has instead allowed the sector to pause, reset and align itself with the needs of the businesses who use them, a rebirth rather than a death.