The changing landscape of Edinburgh's supply/demand imbalance

Edinburgh started the year with a strong performance in the first quarter of 2025, with take-up 54% higher than the same period in 2024. With a continued strong demand for prime Grade A offices, Edinburgh’s office market is in a good position as we go through the year.

While traditional sectors remain key drivers of demand, Edinburgh’s economy has diversified significantly, with growth across various industries, but the financial services sector remains a cornerstone. Additionally, Edinburgh is emerging as a leader in technology and life sciences, with companies such as Skyscanner and Rockstar North contributing to a dynamic, forward-looking economy.

Edinburgh’s competitive position as a global business hub is bolstered by its ability to attract and retain top talent. The city’s prestigious universities, including the University of Edinburgh, produce highly skilled graduates in fields such as engineering, business, and technology. Notably, 18% of graduates who remain in Edinburgh work in professional, scientific, and technical fields, highlighting the city's capacity to nurture a highly skilled workforce.

However, the city’s office market is struggling to keep up with the growing demand from businesses eager to capitalise on this talent pool. Prime availability decreased by 12% at the end of 2024, with only 0.6 'years of supply' in Edinburgh based on average Grade A demand.

The development pipeline is constrained, with no new developments currently on site. This critical supply-demand imbalance threatens to hinder the city’s future growth and competitiveness.

As more businesses in technology, finance, and life sciences expand, the demand for modern, flexible, and high-quality office space has intensified; however, much of the existing stock is outdated, and businesses are increasingly seeking modern, sustainable, and flexible spaces that meet the needs of today’s workforce. This growing mismatch between demand and supply poses a serious challenge to Edinburgh’s identity as a thriving business incubator, pushing companies to either compromise on location, design, or amenities.

However, in response to this supply gap, there has been a noticeable uptick in office refurbishments across the city. With developers increasingly turning to refurbishment projects as a solution to meet the demand for modern office spaces. These refurbishments are not just about updating old buildings, they are being transformed into high-quality, sustainable, and flexible workspaces that align with the evolving needs of businesses and employees.

A notable example is 24 St Andrew Square, a 48,000 sq ft development by Ardstone Capital, which was two-thirds let at practical completion. These growing refurbishment trends are helping to bridge the gap between supply and demand, offering a viable solution to accommodate expanding businesses while revitalising existing stock.

Why Edinburgh must protect its prime office stock

Edinburgh’s city centre is at a pivotal moment. While the Scottish capital has long been a magnet for both business and tourism, an increasing number of prime office conversions to hotels is disrupting the balance that makes Edinburgh a dynamic and diverse economic centre.

This is not about opposing alternative uses for buildings. The city should absolutely support the conversion of obsolete space into more viable assets, especially as tourism continues to be a key part of Edinburgh’s economy. However, ensuring a thoughtful balance between tourism and prime office accommodation in core locations is essential for the city’s long-term prosperity.

Protecting Edinburgh’s office space

The nature of work has evolved since the pandemic, with hybrid and flexible working becoming more prevalent. Rather than diminish the need for office accommodation, for many occupiers these new ways of working have reinforced the need for a high-quality office environment to complement hybrid working arrangements. Companies are now looking for well-located, well-designed office space that fosters collaboration and innovation.

Edinburgh’s central business district (CBD) has long provided this, particularly in key locations such as St Andrew Square, Exchange District and the West End.

Yet, Edinburgh’s office market remains constrained with a worrying shortage of prime Grade A space, which is subsequently impacting business expansion and relocation decisions. With a lack of new development, the case for refurbishment is strong, with almost 40% of take-up in 2024 for refurbished office stock. One example is Ardstone Capital’s refurbishment of 24 St Andrew Square on behalf of CBRE Investment Management and the Ardstone Regional Office Fund, which was two-thirds let at practical completion, demonstrating the continued strength of demand for this type of high-quality space.

Significant competition

Despite this, and even against a backdrop of positive sentiment, office developers in Edinburgh face a significant challenge. Essentially, they are struggling to compete when it comes to acquiring vacant offices to either refurbish or redevelop.

Over the past 18 months, over 220,000 sq ft of prime office pipeline has been taken out of the market, all of which was sold for hotel conversion. While this demonstrates the significant appetite from hotel operators and enhances the city’s tourism appeal, it also raises considerations about maintaining sufficient prime office stock to support a dynamic economic centre. Especially as the recent sales are not of tertiary-located offices, but prime sites that, if developed, would command top-level rents.

Savills sale of Edinburgh One, located on Morrison Street in the heart of the Exchange District, is a good example. It attracted strong interest from both office and hotel developers but ultimately sold unconditionally for hotel conversion. Other examples include Capital House, 28 St Andrew Square and 9–10 St Andrew Square. These are prime locations that cannot be easily replicated, meaning businesses may need to start looking elsewhere and highlights the importance of creating a planning framework that supports a well-balanced approach to development.

A vision for the future

At present, there is no specific planning policy preventing the conversion of office buildings to hotels. Although the National Planning Framework 4 (NPF4) assumes the retention of office buildings and encourages alternative uses where office space is deemed unfit for purpose, there is no explicit protection of prime space. However, introducing measures to safeguard strategically important office locations could help maintain a thriving business environment alongside the city’s growing visitor economy. By fostering collaboration between Local Authorities, planners, developers and investors, Edinburgh can continue to evolve in a more balanced way that supports both tourism and business needs.

Additionally, if exit yields tighten for office developers, this will make them more competitive when bidding for properties. After all, the issue isn’t a lack of appetite, as evidenced by the aforementioned sale of Edinburgh One.

Time to strengthen policy protections

The future success of Edinburgh’s city centre depends on its ability to retain a strong commercial core. Now is the time to bolster planning policies that protect office floorspace, ensuring there is room for businesses to expand and for new companies to establish a foothold in the city. Without such measures, Edinburgh risks running out of prime office space altogether, damaging its reputation as a top-tier business destination.

The growth of the Engineering sector in Edinburgh

The engineering sector in Edinburgh has experienced significant growth over the past decade, driven by advancements in technology, infrastructure development, and a strong emphasis on innovation. Engineering contributes over £5.7 billion annually to Edinburgh's economy, with nearly 5,000 engineering businesses operating in the city. The city attracts over 21,000 graduates from Scottish universities and colleges each year in areas of IT, engineering, maths and sciences.

As Scotland’s capital, Edinburgh has established itself as a hub for engineering excellence, particularly in sectors such as renewable energy, software engineering, aerospace, and biomedical engineering.

One of the major factors contributing to this growth is the city’s strong academic foundation. The city has a strong reputation for engineering (ranked in the top 100 globally by Times Higher Education), with institutions such as the University of Edinburgh and Heriot-Watt University, with Civil and Structural Engineering courses ranked in the top 150 in the QS World University Rankings, producing highly skilled graduates in engineering disciplines, fuelling the local talent pool. These universities also collaborate with industries, fostering research and development in emerging fields like artificial intelligence (AI), robotics, and sustainable engineering solutions.

The renewable energy sector has played a crucial role in Edinburgh’s engineering expansion. With Scotland’s ambitious targets for net-zero carbon emissions, the city has seen an increase in engineering projects related to wind, tidal, and hydrogen energy. Companies specialising in green technology have set up operations in Edinburgh, contributing to job creation and economic development. Additionally, Edinburgh’s financial sector has embraced fintech engineering, integrating AI and blockchain technologies into banking and investment services. This has led to increased demand for software engineers and data scientists, reinforcing the city’s reputation as a technological powerhouse.

Infrastructure development has also been a key driver, with ongoing transport and construction projects requiring civil and structural engineering expertise. The expansion of the Edinburgh tram network and smart city initiatives highlight the city's commitment to modernising its urban landscape.

Overall, Edinburgh’s engineering sector is thriving, supported by education, innovation, and investment in sustainable technology. As the city continues to evolve, engineering will remain a cornerstone of its economic and technological growth.

Identifying Edinburgh's Office 'Demand of the Future'

Capital raising activity, by type, in and around Edinburgh since the beginning of 2023

Savills finds potential office occupiers by reviewing various 'sources of demand.' This ensures that we have the broadest awareness of future occupiers who could take office space in the city. Lease event activity is the first data to review. For this, Savills has the most comprehensive database of future events. For Edinburgh, the top three business sectors account for nearly 1.2 million sq ft of lease events in the next five years.

The next level involves tracking and investigating the financing deals completed by those companies that are headquartered in the city. These deals may result in commercial real estate demand, today or in the short term. As shown in the map above, there have been dozens of financing events in the past couple of years, which includes 'exits' such as IPOs, M&A, and debt-related deals. High-value corporate financing events may have an impact on commercial real estate demand in multiple locations, for the company, and not just the headquarter city.

Smaller financing deals, including private equity, such as venture capital (VC), will tend to have a more local impact. Earlier stage capital, raised by smaller companies, implies that they are in a higher growth phase and office need could grow at a faster pace. Edinburgh has seen around £520m of VC raised in the last couple of years in 232 deals. These deals will contribute to office take-up in the short term. For these VC deals, the Life Sciences and CleanTech subsectors have accounted for the majority of the capital raising.

Most companies are not in capital-raising mode, so it is important to also track those fast-growth 'private' companies that may be poised for new or more office space. In total, it is estimated that there are 1,144 such companies in Edinburgh, of which 246 are classified as being 'scale-up' and in a faster growth phase. As a result, the need for office space may be much sooner.

Finally, it is important to review 'spin-out' activity from the city's academic institutions, which is another potential source of future office demand. These spin-outs will be at a very early stage of growth, but are ones to watch for the future. Of all the nine major UK cities, Edinburgh has seen the highest level of spin-out activity and has also seen a considerable number of companies attending accelerator programmes. This will create a strong flow of future growth companies.

With such a wide range of property in Edinburgh, our teams have the skills to match. They can help you with residential, commercial and rural property, as well as land sales, valuation, planning and building consultancy.

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