Savills - General - Edinburgh,

Date: 09 Mar 2010

Edinburgh office market report.

According to Savills research, office occupiers looking for new space in Edinburgh are set to benefit from attractive lease terms in 2010 as landlords recognise the need for flexibility. The international real estate advisor predicts that as a result of these more appealing terms, take-up in 2010 will be far less sector led and more opportunistic as those companies with lease expiries coming up in the next few years look to secure better quality space on more flexible agreements.

Keith Dobson, head of Savills Edinburgh office, comments: "Throughout 2009 office take-up in Edinburgh was dominated by the Business and Consumer Services sector, which accounted for 30% of the space leased, with the next most active area being the Public Sector at 20%. However, moving forward we expect that take-up will be far more varied with occupiers taking advantage of more incentivised deals than were previously available."

Occupier demand in Edinburgh was reduced during 2009, with Savills recording a take-up figure for the year of 500,000 sq ft (46,450 sq m), 47% of which was Grade A. This, combined with the rising levels of availability has resulted in an inevitable fall in rents. Prime rents in the Central Business District (CBD) fell by 5% in 2009 and rents in the out-of-town markets decreased by 15%.

Looking forward, Savills expects take-up in the Edinburgh market to improve as the economy enters a firm recovery in 2011. This, combined with the lack of development completions, will lead to sharp fall in Grade A vacancy rates and upward pressure on net-effective rents from the end of 2010.

With regards to the Edinburgh investment market, Savills research shows that prime office yields in Edinburgh are expected to harden throughout 2010 as a result of continued investor demand for quality buildings with secure income streams. According to the company's report, prime yields fell from 7.5% during 2009 to current levels of 6% and this figure is expected to move in further during 2010, albeit at a slower pace.

Nick Penny, investment director at Savills, comments: "Edinburgh's office investors have been driven by risk aversion and the desire to acquire good quality buildings with long lease terms to strong covenants. While we expect to see a decline in interest from international buyers in 2010, this gap will be filled by the return of traditionally dominant UK insurance, retail and pension fund buyers."

Savills report also predicts a growth in voluntary and involuntary sellers in the market during 2010 and 2011 as some vendors seek to take advantage of recent price rises to make tactical sales and lenders become firmer regarding repayment dates.

Nick Penny continues: "While there are certainly some positive signs for the investment market moving forward, there is only so long that total returns can be driven by falling yields. A return to upward rental growth is fundamental to a sustainable recovery in prices."

Where do I go now?: » View the latest news items » View the news archive » Subscribe to Weekly Property Newsletter » Submit news