Severe restrictions on development finance for new build, alongside a lack of private sector confidence, means that supply is beginning to dwindle.
GVA's research has highlighted that there is perhaps 18-24 months supply left to meet the anticipated demand.
In the last 12 months there has been a high level of activity within the grade A office letting market in central Edinburgh, totalling 169,570 sq ft.
Rapidly diminishing stock, together with transactions currently under offer in the market, will soon lead to a lack of suitable office accommodation to meet anticipated on-going occupier demand.
Current Edinburgh city centre grade A supply, as of June 2012, is approximately 360,000 sq ft, of which 100,000 sq ft is under offer. There is currently live demand for over 300,000sq ft of grade A space. Two developments currently under construction in Morrison Street will add much needed supply but this will not be sufficient going forward.
Commenting on the report, Toby Withall, National Markets Director for GVA Scotland said:
"There is a common misperception in Edinburgh's office market that the credit crunch and banking crisis led to the financial services sector dumping operational office stock on the market.
"However, this is not the case and in fact the vast majority of the main bank's operational stock remains occupied in both central Edinburgh and out of town. In addition, there is very little new grade A accommodation under construction in the city centre, with just two sites currently under construction, both on Morison Street, which are expected to total 226,000 sq ft, 48,000 sq ft of which has already been pre let.
"Research suggests there are a healthy number of occupiers with break options and leases that will expire in 2013-15. If as expected, these companies choose to relocate, demand will only increase, which in turn will have a positive impact on rental values.
"The lack of suitable office accommodation could lead to upward pressure on rental values by as much as 20% in the city. A clear opportunity exists therefore for developers and investors, particularly given the lead in time for construction and site establishment.
"The message to occupiers, with an eye on relocation in the next few years, is not to be fooled by the number of boards up in Edinburgh. When you drill into the stock available you will be surprised at the limited choice of new grade A office space. In order to benefit from considerable incentives and reasonable rental values the message is, if possible, bring forward your relocation plans. Otherwise there is a risk that you'll either have to stay in an office location that doesn't meet you requirements or you'll be relocating later, when office rents spike and incentives reduce considerably."
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