Why rents for prime offices in Edinburgh have jumped by 8 per cent in the last year

Independent commercial property consultancy Knight Frank said 2023 saw such rents rise by 8 per cent to £43 per square foot from 2022, the largest increase since 2015’s 11 per cent, and ahead of the 5 per cent annual average since 2014.

The firm added that despite the challenges the pandemic presented to the market and the shift towards hybrid working, prime rents in the city have risen by more than a fifth since the end of 2019.

Knight Frank also expects further increases in the market by the end of 2024. The Scottish capital’s overall vacancy rate remained at around 11 per cent during the second quarter, but new and second-hand grade A availability has fallen to less than 0.4 per cent and 6.7 per cent respectively.

Andrew Hill, lease advisory partner at Knight Frank Scotland, said: “Rents for prime offices in Edinburgh have risen at a significant rate in the last 12 months. A big contributor to this has been the flight to quality we have seen since the Covid-19 pandemic, with occupiers favouring quality space in prime locations, with good access to amenities. At the same time, there has been very limited supply of stock coming through, and that has put upward pressure on rents for in-demand properties.

“With so little in the development pipeline and a lot of existing office space being repurposed for other uses, the grade B and C properties are also holding up well. There is a particular lack of stock in the city centre for smaller suites of below 5,000 sq ft, which is one of the main contributing factors to rising rents in these markets.

“As a result, it’s more important than it has been for some time for landlords and occupiers to begin discussions early when lease events are on the horizon, seek representation from an adviser, and collaborate over any planned changes to rents.”

Knight Frank last month said investment in Scottish commercial property fell by almost a fifth in the first six months of 2024 as the Bank of England dithered over interest rates.

The firm’s analysis of Real Capital Analytics data found that nearly £750 million was invested in Scottish commercial property assets between January and June of this year. This was down 19 per cent on the £922m in the same period last year and 22 per cent below the five-year average of £954m, but it was more than double 2020’s £447m, when the market was rocked by the pandemic. Offices accounted for 16 per cent of the latest total.

Alasdair Steele, head of Scotland commercial at Knight Frank, however said at the time that there had still been “a relatively healthy level of deal activity and interest” in the period.