A lack of office supply in the face of consistent office demand will be the main driver of above-average rental growth in Edinburgh in the next two years, according to a new report from JLL.
The report – European Office Rental Growth Hotspots 2018 – identifies ten markets in Europe set to experience supply-led office rental growth outperformance in the next two years. Amsterdam will see the greatest increase, followed by Stuttgart, Stockholm, Munich, Prague, Dublin, Edinburgh, Barcelona, Warsaw and Utrecht.
Edinburgh is the UK’s top ranked city within JLL’s Supply Sensitivity Index. Just outside the top ten, in the top 15, sit UK regional office markets Manchester, Leeds and Birmingham which also offer substantial potential for further rental growth driven by a lack of supply.
The Supply Sensitivity Index takes into account seven metrics – such as future supply and rental sensitivity – across 35 European cities over a 20 year time period, and which more deeply explores the relationship between supply and net effective rental growth, complementing traditional macro-economic forecasts.
Within Edinburgh, high-quality space is in increasingly short supply, with total Grade A vacancy at just 1.4%, and saw annual rental growth of 3.2%. Despite potential geo-political headwinds, the outlook for landlords remains positive with tight supply, slow development and active pre-letting expected to drive rental growth in Edinburgh.
Cameron Stott, director, office agency, JLL said:
“Given how long we’ve been talking about Edinburgh’s constrained office supply, it comes as no surprise that the Capital ranks highly for supply-led rental growth. While it is good news for landlords, it’s not such welcome news for occupiers, particularly Edinburgh’s booming tech sector. High rental prices also place Edinburgh at a disadvantage in comparison to other UK and European cities when competing for potential footloose requirements.
“The key to easing supply is, of course, to start developing more office accommodation. The City needs to find a way of encouraging more development. Part of the problem here is the loss of many second hand office buildings to alternative uses primarily hotels, residential and student development. If we can improve the provision of new build offices, we can start releasing some of the older office stock which is then protected for its existing use and available for younger growing companies to expand into.
“It’s not all doom and gloom from the supply side. New developments such as Haymarket, one of Scotland’s biggest commercial development sites recently acquired by M&G, as well as plans by Parabola for a new ‘urban quarter’ in Edinburgh Park, will provide much needed relief to the city’s stock of new Grade A office supply. In addition, 80 George Street is undergoing a refurbishment which will see approximately 40,000 sq ft of Grade A space coming onto the market in 2019.”