Kilmartin's £35m office deal offers hope of turnaround

Published on Sunday 22 July 2007 00:09

SCOTTISH property group Kilmartin has sold a £35m office complex in Edinburgh to German investment house Oppenheim in what agents say is a clear indication that tenant demand for the city's top-grade space is beginning to pick up.

Kilmartin is scheduled to begin building the 60,000sq ft property on Leith Street, subject to planning approval, and work should be finished by late 2008 or early 2009.

The Edinburgh-based company plans to fund all or the majority of the development itself, with Oppenheim Investment Funds taking ownership on completion.

Edinburgh City Council agreed to sell the site, beside the St James shopping centre, to Kilmartin at the beginning of the year for a reported 3m, with the deal subject to planning permission.

Kilmartin has chosen to press ahead with building more offices in the east end of the city centre, even though property agents are currently struggling to find occupants for two other developments in the area. Despite rumours of Microsoft being interested, tenants have yet to be found for Waverley Gate, the former GPO building, which was completed in February last year in a 100m refurbishment.

But Cameron Stott, director of Jones Lang LaSalle Edinburgh, said that despite a subdued six years he expected the market to pick up within the next 18 months. "The market has been rather quiet over the last six years or so," he admitted. "But in the last 12 to 18 months we have been warning people that the market is starting to come back. The concern now in the office market is of a potential shortage. With no new developments coming through in 2008 in the city centre, the outlook is tight."

Nick Ball, development director at Kilmartin, said the new building would benefit from the planned redevelopment of the St James Centre.

"The sale to Oppenheim really crystallises the project. Given the nearby amenities and the planned redevelopment of the St James Centre, it's a great site for an office development.

"This is a good indicator of investment confidence in the Edinburgh office market. What Edinburgh really needs to do is to be able to compete with the other provincial cities in the UK, but with such a paucity of new developments coming through then we will struggle to compete with these locations."