Stagnation predicted for prime office rents

Published on Monday 25 August 2008 10:55

THE price of renting prime office space in the Capital is set for a period of stagnation, before picking up again in 2010.

A slowdown in demand from new tenants in the wake of the credit crunch is expected to result in prime office rents freezing at 30 per square foot for the remainder of this year and throughout next year.

The slower rental growth, after a five per cent rise this year, will be good news for tenants, who will not need to pay extra for occupying space in the city, but it could put off potential investors, already reeling from rising building costs and a tightening up of lending from banks.

However, the research, by property firm DTZ, suggests that, with the slowdown in development this year and next year, rents will rise again in 2010 because of a shortage of supply.

Mark Jones, a director at DTZ in Edinburgh, said: "There are four schemes, with over half a million square foot of office space, currently under development in the city centre and they will all be complete in 2009-2010. That is about right for the market.

"But because there will not be many planning to build next year – and you can't just put an office block in, it takes time – there will not be many new-build schemes in the pipeline, and that will result in a lag."

He said that he expects the average of 10-12 per cent of space to continue, although there could be additional incentives offered by building owners in order to attract tenants.

The number of development completions in 2008 in Edinburgh will slump to below 50,000 sq ft, the slowest rate since 1992.

Gross domestic product growth in Edinburgh is forecast to fall slightly next year to 2.2 per cent, compared to 2.5 per cent this year, but pick up again in 2010. And consumer spending growth is forecast to fall to 1.6 per cent this year and 1.5 per cent next year, compared to 3.1 per cent last year.

The report came as Charles Bean, the new deputy governor of the Bank of England, warned that the financial slowdown could "drag on for some considerable time".