A STRONG recovery in the Edinburgh office market is creating an urgent demand for new premises and forcing up rents, according to one property agent.
Lettings are already higher than before the financial crisis in 2007 and Montagu Evans says the momentum built up last year has continued into the first quarter of 2014, with take-up almost 50 per cent up on the same period in 2013.
Hugh Rutherford, partner and head of business space at the firm, said the latest figures reflect the diversity of the Edinburgh economy as well as improving business and economic sentiment.
Significant deals include the former TechCube technology incubator, now known as Codebase, taking 26,600sq ft at Argyle House in Lady Lawson Street; and Zonal Retail Data Systems taking 20,000sq ft at Tanfield in Inverleith.
New offices are being built and will come on to the market over the next two to three years and some – such as the developments at Caltongate, Haymarket and Fountainbridge – over the longer term. But agents say rising demand is already forcing demand for more space higher up the agenda and fuelling a rise in rents – a trend that is spreading to the outskirts of the city, such as Edinburgh Park.
Rutherford said: “Occupiers entering the Edinburgh office market are surprised to discover that when they start looking for new space in specific size ranges and in specific locations the choice has significantly diminished.
“In certain size ranges – 30,000 to 40,000sq ft plus – the availability is extremely low. What was, during recession, an occupiers’ market, is now turning and we expect to see more robust approaches from landlords in their dealings with tenants due to the supply/demand imbalance which is developing and will be sustained until new development starts to emerge in Edinburgh in 2016-17.
“Already incentive packages available are diminishing and we are forecasting further rental growth during 2014 and into 2015 and beyond.”
Rutherford described this as a “warning call” to occupiers. “If they have to move or have the opportunity to move any time over the next three years, they need to start thinking about property now, to allow them to have flexibility of choice and to allow them to lock into lower rentals and higher incentives than will be available by the end of 2014.”
He said corporate social responsibility requirements also meant occupiers want more efficient and sustainable offices to help provide “future proofing” for investors. Investment yields are moving in expectation of rental growth, resulting in higher capital values for office vendors.
“The weight of money created by UK, European, Asian and American investors reflects the belief that London is expensive and highly competitive and better opportunities are available in the key regional cities such as Edinburgh, Aberdeen and Manchester.”
The Aberdeen market is also suffering from a shortage of industrial product and sites as developers and landowners capitalise on the higher return obtainable from offices.