Capital office market sees rent growth outgun rivals

● Knight Frank study expects rents to hit £40 by 2022 ● Points to strong demand for space and supply issues

Edinburghhaspushedintothe top 20 global business hubs in terms of prime office rents and rental growth, thanks to its buoyant commercial property market.

New research from property consultancy Knight Frank shows that the Scottish capital’s estimated office rental growth of 4.5 per cent last year outpaced a number of European capitals – including London, Dublin, and Madrid.

Prime office rents in Edinburgh are expected to grow by a further 2.9 per cent to £36 per square foot in 2019, before reaching £40 per sq ft by the end of 2022, amid a scarcity of new developments.

The city’s rental growth forecast for this year is in line with other UK cities included in the analysis, including London and Birmingham (both 2.9 per cent) and ahead of global locations such as Paris (1.2 per cent), New York (0.6 per cent), and Tokyo (-0.5 per cent).

While Edinburgh city centre average annual take-up of grade A office space has traditionally been around 220,000 sq ft, in recent years it has consistently exceeded that figure. Last year, grade A take-up stood at 338,482 sq ft, according to Knight Frank.

Releasing the firm’s latest Global Outlook report, Toby Withall, office agency partner at Knight Frank Edinburgh, said: “In spite of the uncertainty caused by Brexit, Edinburgh has fared well thanks to strong growth from the tech sector and the resilience of professional services.

“The universities have been proactive in establishing incubators to house new firms and the arrival of co-working operators is also providing startup friendly space. Perhaps most importantly, Edinburgh remains a popular place to live and work, with a lifestyle conducive to attracting and retaining a talented and educated workforce.

“While the lack of grade A space is good news for landlords – it’s a double-edged sword. It could significantly impact on Edinburgh’s attractiveness as a location for businesses.

“Indeed, any companies planning to move within the city over the next year will need to carefully consider their options or look at preletting some of the new space which will be delivered in 2019 and beyond.”

James Roberts, chief economist at Knight Frank, said: “We believe there is a compelling case for continued rental growth across the global cities. Tight development pipelines over several years have created leasing supply crunches, particularly for offices and logistics property.

“This is coinciding with stronger occupier demand, particularly from the tech sector. We expect these improving expectations on rental growth to give more investors the confidence to make leveraged buys, particularly given the supply problems found across occupier markets.”