Edinburgh is a city at a crossroads. A sluggish office market has given occupiers and agents time to reassess the Scottish capital’s future and face the fact that, if the city is to maintain long-term prosperity, some things have to change.
Standard Life, one of the city’s biggest occupiers, announced in the spring that it was consolidating, putting nearly 200,000 sq ft of space back into the market. The city’s agents do not seem overly bothered by the amount of space being shed, but they are bothered by the decision and asking: has Edinburgh become too reliant on the finance sector?
Susie McCosh, senior surveyor at GVA Grimley, believes it has. “Standard Life could be the tip of the iceberg. The decision has made Edinburgh realise how much it relies on certain sectors. We do have to start looking at alternatives.” She is not alone. “It is a wake-up call for the city fathers,” says Hugh Rutherford, partner at Montagu Evans.
Edinburgh has benefited from the number of companies in the finance sector that have either merged or been taken over. Halifax Bank of Scotland, for example, has selected Edinburgh as a key location. But, for a number of companies, this is not always the case. Abbey, which took over Scottish Provident, announced job cuts earlier this year.
Cameron Stott, national director at Jones Lang LaSalle, explains: “Abbey has made Scotland its back office location rather than choosing to have its head office here. Standard Life controls its own destiny, for the time being.” Indeed Standard Life is looking to demutualise in 2006, making it a potential target for takeover. A new parent company could decide to move offices elsewhere.
It is the ifs and buts that have been occupying the city fathers, or the city council, as some prefer to call them. The council released a 2020 vision document earlier this year to stir updebate about the city’s future. It set out two scenarios for the city, one good and one bad.
The doomsday version paints a picture of Edinburgh losing financial service sector jobs to other countries, and becoming unattractive to other businesses because of terrible traffic congestion. It is a picture of a city that has rested on its laurels.
Agents believe that Edinburgh should be fighting back. “There has almost been acomplacence that Edinburgh will create new occupier demand,” says Toby Withall, associate at GVA Grimley. Rutherford agrees:”Edinburgh needs to attract more inward investors. It needs to be proactive, like Glasgow.”
This is not to say that the city is in a critical situation. As James Thomson, director at DTZ, points out, there is a strong base to work from. But there are still problems to be addressed. Issues raised in the 2020 document, such as infrastructure, are crucial. “Edinburgh needs to market itself more strongly, and address issues such as the quality of its retail, housing costs and transport. We can’t rely on the finance sector to provide growth in the future,” says Thomson.
If there was ever a time for Edinburgh to be making some tough decisions, it is now. The finance sector is by no means on its knees. Two more of the city’s biggest occupiers, HBOS and the Royal Bank of Scotland, are still acquiring space, and recent deals to Cityscape and State Street show that the city’s love affair with the sector is not yet over.
However, the consolidations, acquisitions and mergers have all shown that Edinburgh is vulnerable to market changes and competition. The next steps the city council takes will shape the city’s future.
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At a time when Edinburgh’s office market is jittery, it would seem inappropriate to talk about a potential shortage of supply. But that is exactly what agents are predicting for the city centre. “If the take-up that we have seen over the past 15 months continues, then during 2005 there will be a shortage of grade A space available,” says Cameron Stott, national director at Jones Lang LaSalle. Of the three buildings under construction in the city centre, two are due to complete next year, and one of these, Edinburgh Quay, is already part let. But the rate of take-up (see graph above) has not been enough to encourage developers with sites to begin activities, particularly when the amount of space available to the west of the city is still sizeable. However, Hugh Rutherford, partner at Montagu Evans, believes it could be time for developers to capitalise in a market poised to turn a corner. He explains: “There is an opportunity in Edinburgh’s city centre because there is a shortage of supply and pent up demand. If an occupier is looking for 60,000 sq ft or more then there is only one building available. There are a lot of consents pending, and the people who will benefit are those that press the button now for completion in 2005/6.” Charles Guest, partner at Ryden, describes Edinburgh’s history of supply as “feast or famine”. He adds that, if the city is not careful, it could once again go hungry. Indeed, Stott believes that if development is not started imminently, the city could see a whole year without any completions. Edinburgh, with its finance sector predominant, uses the City of London as a gauge of how the national market might be going. “It is going to be an interesting year. We are seeing some green shoots of recovery from down south, and we should see some confidence coming back,” says James Thomson, director at DTZ. If that confidence does manifest itself in occupier activity, agents hope that those developers with sites in Edinburgh will gain confidence too. |
