Edinburgh office rents outpace European rivals

Edinburgh’s buoyant office market has seen the Scottish capital break into the top 20 global business hubs in terms of prime office rents and rental growth, according to new research from Knight Frank.

The commercial property consultancy’s latest Global Outlook report found that Edinburgh’s estimated rental growth of 4.5% in 2018 outpaced a number of European capitals – including London, Dublin, and Madrid (all 0.0%).

Prime office rents in Edinburgh are expected to grow another 2.9% to £36 per sq. ft. in 2019, before reaching £40 per sq. ft. by the end of 2022. Its rental growth forecast for 2019 is in line with other UK cities included in the analysis – London and Birmingham (both 2.9%) – and ahead of global cities such as Paris (1.2%), New York (0.6%), and Tokyo (-0.5%).

Knight Frank said that rental growth in Edinburgh would likely continue to be driven by high levels of demand, combined with a restricted supply of Grade A accommodation.

While city centre average annual take-up of Grade A space has traditionally been around 220,000 sq. ft., in recent years it has consistently exceeded that figure. In 2018, Grade A take-up stood at 338,482 sq. ft.

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 coworking operators is also providing start-up 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 pre-letting some of the new space which will be delivered in 2019 and beyond.”

James Roberts, Chief Economist, Knight Frank commented: “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 fast-growing 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 global occupier markets.”