Office rents in Edinburgh’s city centre are likely to exceed £35 per square foot this year as an “acute” lack of supply will continue to drive up costs for the capital’s businesses, new research suggests.
The top end of business rent in Edinburgh currently stands at £35 per sq ft and property advisor Savills expects the upward trajectory to continue in 2019.
High demand for, and limited supply of, commercial property will push rents up and encourage organisations to consider opportunities west of the capital, according the firm.
Research from the property advisor shows that office take-up in Edinburgh during 2018 was 18 per cent higher than the ten-year annual average, totalling 950,000 sq ft.
However, despite “strong occupier demand” the figures indicated a slight drop compared with the previous year, when take-up exceeded 1.04 million sq ft.
Savills attributed this dip to a “lack of good quality, city centre office supply”, with the majority of new developments in 2018 being wholly or partially pre-let. This is forcing an increasing number of occupiers to re-negotiate existing leases against a lack of alternative options, the firm noted.
It reported that office rents in the city centre are also being impacted by rising building costs.
The firm suggested that out-of-town opportunities would grow in popularity with businesses that are more flexible in terms of location. It cited west Edinburgh in particular, where “significant investment” in infrastructure has led to improved public transport links, as a key area.
Mike Irvine, director in the Scottish office agency team at Savills in Edinburgh, said: “On the one hand we see businesses looking to enter and/or expand within the city centre in order to attract and retain talent, but there are also some occupiers who are less dependent on a city centre location that are starting to look elsewhere in light of rising rents and limited stock.
“The supply of land for new office development in the city centre remains severely restricted and what’s more, not all existing older buildings in the city centre lend themselves to refurbishments that satisfy today’s occupier. As a consequence we are unlikely to see the trend towards rising city centre rents abate in the short to medium term. Rising build costs are a further contributor to this trend.”
Greater demand for commercial property has also been reflected in other studies, with property consultancy JLL announcing in November that a record amount had been invested in Scotland’s commercial property market during first nine months of 2018.
Some £1.8 billion was invested in the first three quarters of 2018 – a rise of 46 per cent from a year earlier.