The coronavirus pandemic has had a devastating impact on industries around the world, and the ongoing impact of COVID-19 is still widely visible for all to see. Unemployment rates have risen, supply chains have been impacted, and the public health crisis has intensified in countries around the world.
Despite interest rates in the UK dropping to almost zero percent, and the implementation of unprecedented government stimulus packages, the pandemic is still affecting many industries. One industry that has been affected by the epidemic is the Edinburgh office market. Keep reading below to find out how exactly the Edinburgh office market has been affected and whether it will be able to recover in the future.
The Edinburgh Office Market in 2019
2019 was a bad year for the Edinburgh office market. In fact, during this year, Edinburgh office market deals fell by approximately 45%. This was mainly due to economic uncertainty caused by Brexit and the General Election.
However, at the start of 2020, the Edinburgh office market began to improve. Thanks to new technological advancements becoming available for landlords and occupiers, and a more energised market, the office was no longer seen as just a place to work.
Although the start of 2020 saw improvements in the market, the market soon took a downturn thanks to the coronavirus pandemic. Not only did the pandemic lead to thousands of people losing their jobs, and all but essential workers being told to stay at home, it also led to hundreds of businesses closing their doors for good. Despite this, the Edinburgh office market still managed to survive.
Lockdown’s Impact on the Edinburgh Office Market
When lockdown restrictions were first implemented in Scotland in March 2020 because of the COVID-19 pandemic, the Edinburgh office market was severely affected. Restrictions meant that office moves and other related activity could no longer go ahead unless classed as reasonably necessary. This quickly led to a reduction in the number of office sales and the number of office spaces coming to the market.
However, after the restrictions were lifted at the end of June, we witnessed an improvement in the office market in Edinburgh, with lots of offices coming to the market and high competition from buyers for these properties.
Can Edinburgh’s Office Market Ride Out the Recession?
Despite the challenges it faces, Edinburgh’s office market is in a strong position to ride out the recession caused by the coronavirus pandemic. Experts believe that despite forecasts of an industry shake-up amid the push to work from home, Edinburgh’s office market will be able to survive.
In fact, Knight Frank, a property consultancy firm, states that they believe the vacancy rate for office spaces in Edinburgh is unlikely to go above 8.5%. This is less than half the rate we saw in the aftermath of the financial crisis just over a decade ago.
However, several companies, including PWC, have already stated that they will continue to encourage their employees to work from home in the coming months, and many of them have said they will not be returning to the office. Instead, they will relinquish their office space.
While this may be true for many companies in Edinburgh and other areas of Scotland, the volume of demand for office spaces remains robust, and the supply of new spaces remains scarce.
The Market Remains Resilient
Evidence suggests that the capitals office market remained resilient throughout 2020, despite the challenges of the coronavirus pandemic. Not only that, but this research also suggests that occupiers are still searching for some 500,000 square feet of space, with approximately 417,000 square feet of high-quality accommodation available.
This means that throughout 2020, the demand remained strong, despite the uncertainty in the greater economy, with the UK formally moving into recession for the first time for more than a decade.
Reasons to Be Optimistic
Even though the coronavirus pandemic has negatively impacted the Edinburgh office market, there are several reasons to be optimistic. For example, as mentioned, the volume of demand has remained strong, while the number of new office spaces remains low, as the COVID-19 pandemic has stunted the development of new office spaces. Due to the short supply of office spaces in the Edinburgh office market, many companies are choosing to renovate their existing office spaces with the help of companies like Amos Beech instead of searching for new ones. Amos Beech have a vast background in office fit-outs and refurbishment. Not only that, but they understand that all businesses are unique and have varying wants and needs. All their projects are customized and executed to fit a client’s needs, in the shortest time possible at the lowest costs.
Additionally, The Baillie Gifford pre-let is a huge vote of faith in Edinburgh. Not only that, but there’s evidence that the office market is starting to improve again, with new viewings taking place (following government guidelines) and new deals nearing conclusion. Although many of the requirements that were made before lockdown were rested, they have not been abandoned altogether. In fact, many of them are showing signs of starting once again. We have also seen some occupiers re-kindling deals that were stopped during the first wave of the pandemic.
The Edinburgh Office Market and the Future
Demand for office space is fundamentally related to the economy. Evidence suggests that during a downturn, office demand falls. This is because employment levels drop and businesses preserve their cash instead of investing it. The global pandemic has undeniably driven us into a global recession and in the short term, this will have a direct effect on office demand. However, in the longer term, the office will remain a key part of our corporate culture and it will always play an important role in our productivity and work.
Although the situation is constantly changing, as many businesses look to the future and start planning to return to the office, there are several reasons to feel positive. However, we should remember that it is now more important than ever before that occupiers and landlords work together and regularly communicate with one another as they adjust to new rules, operating models and working patterns. Flexibility is especially important in helping both parties prepare for and manage the challenges that are ahead of us.