New developments cannot hide the uncertainties over property market

By Scott Reid
Published on Friday 7 October 2011 21:57

EDINBURGH’S commercial pro-perty market faces an uncertain outlook despite a surge in new developments as demand for hotel and student accommodation continues to grow.

Publishing it latest “crane survey”, property firm Drivers Jonas Deloitte identified ten starts over the 12 months to the end of June. The figure compares with just one development during the previous year.

Scotland failed to escape the icy blast that swept through the commercial property sector following the credit crunch, with projects put on hold and rental values falling. Edinburgh saw a number of high-profile schemes mothballed as developers and financiers battened down the hatches.

Drivers’ research provides some grounds for optimism, though much of the activity is being driven by a single sector – hotels.

Of the ten starts noted, three were by hotel operators while work also began on two serviced apartment schemes.

Two of the hotel developments – one in Queen Street, the other above Topshop on Princes Street – are pre-let to Travelodge. Drivers said the budget hotel group had been “actively investing in the capital in order to take advantage of increasing demand”, spending £60 million building and converting properties over the “past few years”.

The survey recorded one new student accommodation scheme in the city centre and three residential developments. It also highlighted the start of work on the city’s first speculative office development since 2008 – a major building next to the Edinburgh International Conference Centre which will also provide a below-ground extension to the EICC.

In its report, which provides one of the most authoritative snapshots of activity in the past year, Drivers gave a cautious welcome to the recovery.

“The confidence shown by developers to kick-start this number of schemes is perhaps surprising considering that the economy remains unsettled and the return to growth in the property market continues to be weak,” the firm noted.

“However, it is the more ‘niche’ sectors which are leading the recovery.

“Indeed, the results show that the traditional office and residential markets have yet to make an impact on the development numbers with little new activity.”

In its summary, Drivers pointed to improving sentiment in the office market but suggested that the lack of a development pipeline would put “upward pressure” on rents.

On the residential front, it noted signs of life in peripheral areas of the city but “little activity in the core city centre”. One of the new starts cited, however, was a residential phase at the vast Quartermile development.

“The outlook in Edinburgh remains mixed,” Drivers concluded, “…it does not yet feel like there has been a dramatic breakthrough in the stability of the overall market and it isn’t quite back to ‘business as usual’ which the recording of ten new starts could suggest”.

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