PROPERTY deal activity in Edinburgh is being held back by a shortage of supply of new Grade A office space, it has been declared.

New figures have shown that a total of 661,000 square feet of office space was taken up in the city in 2023. This was down on the 690,568 sq ft taken up last year and an 18% reduction on the 10-year average of 806,000 sq ft.

While the number of new deals, 168, completed last year was an increase on the 151 transacted in 2022, the volume of deals was 16% below the five-year pre-pandemic average.

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Property firm JLL, which released the figures, said deal activity is being impeded by the short supply of “best-in-class” office space, which it said has become an increasing priority for businesses in recent years.

And it said the dearth of supply is causing concern that economic growth is being impeded and exerting upward pressure on rent. Headline rents in the city centre have grown from £40 per square foot at the end of 2022 to £43, a rise of 7.5% year-on-year and 13.2% higher than the previous 24 months.

Hannah Done, associate director at JLL in Edinburgh, said: “It’s a hard-hitting fact that there is currently no availability of Grade A office space amongst Edinburgh’s build stock, and we anticipate that this trend will persist into 2024 without more speculative refurbishment from investors.

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“Notably, a contributing factor to this has been the continued theme of obsolete office buildings – prime for office redevelopment – being converted for alternative uses like hotels, representing big loss for the city’s professional sector and creating concerns for future prosperity.

“Without a step change in development intentions, this poses the city with a serious lack of space for business or enterprise growth. We’re likely to see pressure continue to grow on businesses to secure prime space far in advance of when they plan to move to avoid competition.

“Anecdotally, we’re seeing occupiers with leases expiring as far away as 2028 searching the market for opportunities which might meet their ESG (environmental, social and governance) targets and timeframes.”