JLL, the leading property services firm, has outlined the need for a more proactive and creative approach to dealmaking in Edinburgh’s office market as demand for prime space continues to outstrip supply in city centre locations.

A total of 170,000 sq ft was transacted in Edinburgh in Q3, 115,000 sq ft of which was in the city centre. This takes total take-up for the year to approximately 500,000 sq ft – down on the 5-year average for the same time period. The largest deal of the quarter was Phoenix Group’s subletting of 30,000 sq ft at Standard Life House to financial services business Diligenta.

Activity is expected to increase before the end of the year, with a number of deals nearing completion. Yet a quiet construction pipeline has caused JLL to forecast a significant uptick in prime headline rents over the next 24 months as competition for Grade A space grows increasingly fierce.

The business has reacted by advising occupiers searching for Grade A space to act early ahead of upcoming lease events. Early engagement with existing landlords is important, with many businesses engaging in short term lease extensions in order to allow pipeline opportunities to be delivered into the market in the coming years – a move that appears to be growing in popularity amongst Edinburgh occupiers, with 130,000 sq ft of regears taking place in Q3 alone.

Occupiers that engage early will be best placed to negotiate flexible renewal lease terms, with JLL reporting a number of businesses agreeing deals which require existing landlords to deliver an improved specification in return for extended lease terms.

Landlords are also increasingly being encouraged to think creatively about changing occupant needs to drive interest in their stock, depending on specification and location. JLL report seeing increasing demand for life science, medical and knowledge sector-based requirements across Edinburgh.

An example of this is Tanfield at Edinburgh’s 1 Inverleith Row, where consideration has been given into how the building can be repositioned to offer not only high-quality office space, but also laboratory space to meet the growing demand for Category A life science property in the city centre.

Landlords are also working more closely with tenants to agree deals allowing for amortisation of the cost in delivering a fitout. This deal structure supports businesses who may be risk averse to high initial design and construction expenditure and the management of uncertain timelines for fit-out.

Hannah Done, Director at JLL in Edinburgh, said: “The shifting relationship between businesses and their office space has been a hot topic in recent years. Identifying and adapting to the changing needs of their tenants will be a key first step for landlords looking to future-proof their investments. This has been evident where landlords have more seriously engaged with providing fit outs for incoming tenants.

“Despite the growing shortage of prime space in Edinburgh it remains a city that businesses across all sectors aspire to call home. The city’s continued growth as a hub for business will be reliant on the ability of occupiers and landlords to work in tandem and create suitable options for those looking to relocate.”

“With this in mind, it’s important that businesses take a proactive and early approach to devising their occupancy strategies in the years ahead.”