Office rental market to drop in capital

Published on Saturday 7 June 2008 14:29

EDINBURGH'S commercial property market will decline next year despite defying the credit crunch to date, a report to be published this week will warn.

The latest office rental research from Jones Lang La- Salle shows a drop in growth from 2009 after rents reached a record high of 30 per square foot earlier this year.

A limited supply of office space in central Edinburgh has so far allowed the capital's commercial rental market to resist the dips in growth seen elsewhere in the UK, particularly in London, where prices have suffered since the start of the liquidity crisis last August.

But with a number of key developments due to be completed in areas such as Fountainbridge in 2009, a lack of supply will no longer be able to prop up prices, and the Edinburgh market will decline, according to the report.

Ben Reed, director of Jones Lang in Scotland, said growth was expected to fall to around 3% over the next five years, a marked drop on the inflation-busting 5% growth recorded so far this year. He said a number of large office developments shortly due for completion will shift the balance of power in the commercial property market.

Completions include Scottish Widows Investment Partnership's Exchange Place in Fountainbidge and Kenmore Property Group's Westport 102, a 94,000 sq ft office building close to the Lothian Road.

The increase in supply will favour tenants rather than landlords, Reed argued. Until now tenants have been suffering under the weight of high rents.

He advised businesses that need to renegotiate their office rents in the next 12 months to plan ahead as they may be able to relocate to cheaper premises next year. He said: "The key for any company or organisation is to plan any relocations well ahead of the lease expiry so that they can take advantage of opportunities in the market.

"In current times of economic uncertainty and subdued growth, we will see the real estate market beginning to turn in favour of tenants."