Office development dearth sustains upward pressure on Edinburgh rents

● Latest industry study comes as take-up in the third quarter runs above average

A lack of major new office developments hitting the Edinburgh market in the coming months will sustain upward pressure on rental levels, property experts said today, as a fresh snapshot of the city was published.

With high demand, low supply and little new development underway, Lambert Smith Hampton’s (LSH) latest Scotland office market report notes that “now is the perfect time to invest in property” north of the Border.

It points to a buoyant market across both of Scotland’s biggest cities, with an “enduring strong appetite” for good quality space in both Edinburgh and Glasgow.

Supply in the capital was found to be in decline and now stands at its lowest level since 2010, with new schemes at least 24 months from com- pletion and the majority of the space currently under construction already committed.

Given the number of unsatisfied large-scale requirements in the market, and the lag in new developments becoming available, LSH anticipates that rents in the city centre could reach upwards of £34.50 per sq ft by the end of 2018, with incentive packages reducing further during this period.

Aberdeen’s strong supply of grade A properties, in contrast to Edinburgh and Glasgow, is set against a diminished level of demand, suggesting that market conditions will remain “challenging” in the short term. Ewen White, director, capital markets, Glasgow, at LSH, said: “The substantial increase in requirements is a reflection of the significant yield discount available in Scotland, which is not commensurate with the perceived political risk.

“Each of the key Scottish markets has seen sizeable assets change hands during 2017, particularly in off-market transactions, with Glasgow currently in top spot ahead of Edinburgh and Aberdeen in terms of volume of deals.”

Fellow director Aasia Mohammad added: “Appetite for good quality office space in Edinburgh remains prevalent, however current availability is the lowest of any of the key Scottish markets.

“The severe lack of space, particularly grade A, is likely to restrict activity moving forward, with the absence of new-build delivery expected to sustain upward pressure on headline rental levels and the tightening of incentives, both in Edinburgh city centre and out-of-town.”

The report comes after property adviser CBRE confirmed that Edinburgh was on track for a record year of office take-up. It said Q3 had seen an above average level of take-up.