Commercial property: Edinburgh rent rises create disputes

Edinburgh has seen a marked increase in disputes over commercial property rent reviews as the office market reaches a tipping point, according to analysis from Knight Frank.

The independent property consultancy said that the long-discussed supply and demand imbalance in the Scottish capital was being brought to bear, with rents edging up over the past 12 months.

A headline rent of £33.50 per sq ft was recently achieved in the city – the second highest of any major UK regional hub.

Forecasts from Knight Frank’s Central Scotland Office Market Review suggest this could rise by 2.4 per cent in the coming years to £36 per sq ft in 2020.

The number of instances where landlords and tenants could not agree on a new rental agreement nearly doubled to 292 in 2016, up from 155 the year before – an 88.4 per cent increase.

When this occurs, an independent expert or arbitrator is appointed to facilitate a resolution.

Knight Frank said it expected the number of cases going to third party in 2017 to remain at historically high levels, as more landlords sought to increase rents at their properties.

Andrew Hill, Partner at Knight Frank, said: “Rents are on the rise in the central belt, most notably in Edinburgh, which many landlords are using to justify increases at their properties.

“But, in the aftermath of 2008, most businesses became used to their rents reducing or staying the same – in some cases it may not have gone up for more than ten years.

“The number of cases being referred to third party review clearly demonstrates an increase in landlords and tenants at odds with one another over rents.

“We’ve never had so many cases on our books.”

In such disputes, one or both parties can apply for an independent surveyor to be appointed by the Royal Institution of Chartered Surveyors (RICS).

The way the independent surveyor will go about deciding a fair rent will depend on whether he is appointed as an arbitrator or as an independent expert.

An arbitrator will invite the tenant and the landlord to provide views on what the rent should be, and for evidence to support the estimate.

The rent is then set at a point that falls somewhere between the levels argued.

An independent expert has a more investigative role and is not bound by arguments from landlord and tenant, but will make investigations and use personal knowledge of the market to arrive at a decision.

Hill says: “While the majority (of the disputes) are in Edinburgh, we’re seeing more come from Glasgow, as well as other parts of the country.

“The range that we are seeing can be everything from a million pound office building to the small retail unit whose landlord wants to double the rent.

“From a sector perspective, an increasing number of industrial cases have been referred, as the demand for space continues to far outstrip supply in that market.”