Commercial property: Why Edinburgh needs to expand

Edinburgh is a comparatively small city, but it is growing, and with the demand for homes, offices and hotels putting pressure on limited space, it is time to expand its horizons to establish itself fully as a global city, according to research from property consultant Savills.

Development will need to be on both sides of Edinburgh's bypass. Photograph: Ian Georgeson

The firm’s report, Edinburgh: A Global City in Demand, highlights that with 7,100 extra office-based jobs forecast for the city in the next five years, a likely 3,000 households being created annually and a booming tourist economy, expansion and infrastructure investment are required in order for Scotland’s capital to meet its full potential.

While in the short term, existing and proposed development west of the bypass and the Queensferry Crossing will strengthen these areas and provide both extra housing and space for corporate occupiers, in the long term a strategic approach will be required to pick off sites along the city boundary for further development.

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According to Savills, rental pressures and a shortage of appropriate space in the city centre has already seen the number of office leasing deals in Edinburgh’s out of town markets more than double from 20 to 53 between 2009 and 2016.

Nick Penny, head of Savills in Scotland says: “Scotland’s capital is on the brink of a grand expansion on a number of fronts, from the gentrification of the east end, which has been turbo-charged by the ambitious St James development, to the rapid residential developments that will reach well beyond the current city limits in almost every direction.

“As a result, Edinburgh needs to have a very different structure and shape of the next phase of growth which brings exciting opportunities for the city, allowing it potentially to compete with cities like New York, London and Tokyo for economic investment, tourism and new populations.

“It also brings its challenges, not least how to cater for demand while maintaining the quality of life and dynamism of the city.”

Specific challenges facing Edinburgh that Savills highlights include delivering the office space needed to continue to attract major companies and foster smaller start-ups.

Edinburgh is already home to more FT-SE 100 companies than any other UK city outside London and the capital attracted £1.2 billion of commercial real estate investment during 2016.

The lack of Grade A office space is now pushing rents up, as high as £34 per sq ft for a top floor suite in the city centre, meaning that more space is urgently required.

The city’s booming tourist market is another challenge. An additional 2,400 hotel rooms are set to be developed by 2020, and the expansion in tourism has had a knock-on impact to the retail sector with a 3.15 per cent rise in sales in the city centre reported.

Edinburgh airport’s five year £220 million investment plan aims to increase passenger numbers to 16.5m by 2021.

Cities such as Copenhagen are also investing heavily in their tourist economies, so the city must not lose focus on this important part of its economy.

Edinburgh’s population also exceeded half a million for the first time in 2016 and a long-term undersupply of new homes needs to be addressed.

Penny adds: “Edinburgh is looking like a great place to do business, live, visit and invest, but developing the appropriate commercial and residential space is key to unlocking growth.

“As a city, we therefore need to think of Edinburgh as somewhere with looser boundaries and explore, within reason, where beyond the bypass is appropriate for expansion.”