Overseas investors see Edinburgh property spend nudge 10-year high

Booming demand from overseas buyers means investment in Edinburgh's commercial property market is on course to reach its highest point since 2006, a report today revealed.

High demand, lack of supply and the weak pound is driving investment across the capital. Picture: TSPL

Consultancy Knight Frank said that £336 million worth of offices had been bought in the city in the first half of 2016, with a further £140m likely to be spent by investors in the third quarter.

The total, £476m, would be the highest in a decade since £627m was invested in the Scottish capital during 2006. The £336m spent in the first half of the year also already overtakes 2015’s overall figure of £331m.

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Alasdair Steele, commercial property in Scotland at Knight Frank, said: “This is an exciting time for Edinburgh, despite political uncertainty. A record rent of £33 per square foot was achieved at Atria in the city centre earlier this year and we’d expect further rental growth to follow, as we approach the end of the year.

“If you look back to 2006, when we last saw this level of investment, only four European cities had keener yields than Edinburgh. That’s now 14, which underlines the discount it offers, not only compared to other regional UK centres, but across the continent.”

Steele said a combination of high demand, lack of supply and a weak pound meant Edinburgh presented a “compelling story for investors”.

He said that was particularly the case for overseas investors.

“International money has driven market activity over the past 18 months and we’d expect it to characterise the year ahead too.”

In September, Knight Frank concluded three transactions in the capital, for a combined £22m. Among the properties were Musselburgh’s Eskmills and Shandwick House (67-83 Shandwick Place), which it said demonstrated the appetite for different types of property in the city despite Brexit uncertainty.

Office take-up for the first half of 2016 in Edinburgh was 15 per cent above the long-term average for the period, with 352,500 sq ft let. Technology, media and telecommunications (TMT) companies accounted for more than a third of activity (34 per cent), while availability stood at its lowest level since 2012.

Toby Withall, office agency partner at Knight Frank in Edinburgh, said: “Edinburgh’s fundamentals remain strong. Grade A office space in the city centre is at a premium and the lack of new stock coming through is pushing up rents – given the capital’s historic nature, this trend is only likely to continue.

“There are a healthy number of requirements being circulated and competition for the best space will be fierce.”

Last month, experts at LSH said that some landlords are exploiting a shortage in industrial space in Scotland to push up rents and get tenants to agree to more onerous lease terms. Tightening supply of space and limited speculative development has led to a dramatic rise in rental costs for industrial stock in parts of Scotland over the past year.