Why property investors are flooding into Edinburgh despite office occupiers staying put

Analysis of office space take-up between April and June found that renewed leases amounted to 135,013 square feet of activity across the city, while occupiers agreeing to take new space accounted for 113,000 sq ft. Property consultancy Knight Frank said so-called re-gears were outpacing new leases due to a number of factors.

Chrissie Clancy, a surveyor with the firm’s Edinburgh operation, said: “The strong theme that has emerged over the course of the past three months has been occupiers deciding to stay put and re-gear at their current premises. Part of the reason behind this is the lack of good quality stock coming through the development pipeline in Edinburgh. But it is also partially because of uncertainty over size requirements, with working patterns changing, and the cap-ex costs for fit-outs in the current environment.

“Occupiers are favouring let-ready, fitted space, giving them quick access and less financial liability,” she added.

Edinburgh’s overall vacancy rate remained at around 11 per cent, but new and second-hand Grade A availability has fallen to less than 0.4 per cent and 6.7 per cent, respectively. A series of pre-lets at New Clarendon and 30 Semple Street has further restricted supply, the firm noted.

The study comes as separate research revealed that 90 per cent of property investors would consider investing in Edinburgh during the second half of 2024. The capital’s “international appeal, vibrant culture and strong educational foundation” make it a highly attractive investment destination, according to the research by property advisory firm Lismore Real Estate Advisors.

Respondents also cited the city’s thriving financial and tech sectors, robust rental growth in prime city centre offices, a resurgent prime retail sector, along with the strongest regional hotel sector in the UK.

Over the next six months, 44 per cent of respondents selected “living” as their most favoured sector for investment, with the office, retail and industrial sectors accounting for just under 20 per cent each. Property companies, funds and private equity investors all favoured the living sector with only investment managers more evenly split across the sectors.

Craig McDonald, managing director of Ardstone Capital UK, who was interviewed for the Lismore research, said: “The city offers a unique opportunity with its limited supply of Grade A office space, especially appealing in the office and retail sectors. Given the critical office supply shortage, over the next 12 months, we anticipate that rents may rise to close on £50-£52.50 per square foot for Grade A space.

“With the St James Quarter now full and other new entrants coming to the city, the case for opportunities with properly re-based rents in the best retail pitches of Princes Street and George Street is compelling.”

He added: “In the short to medium term, key sectors driving demand include tech and the enduring financial services sector. Despite political uncertainties, our investment decisions are driven by solid property fundamentals and Edinburgh’s unique characteristics make it a prime location for investment.”

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