The Scottish Property Market has long been a dynamic and evolving landscape and 2024 has certainly been no exception. This year has experienced unprecedented economic factors which have drastically impacted the market, most notably the cost of living crisis, stabilisation of interest rates and the costs of doing business. The political landscape has also changed significantly with Labour winning the general election in July 2024, which in turn has influenced the Scottish Property Market through its broader economic policies, housing initiatives, and regulatory approaches. However, despite these challenges it can be argued that Edinburgh’s property market in 2024 has so far been impressively resilient, with the city continuing to attract buyers/occupiers and development due to its cultural appeal and economic opportunities. From a commercial agency perspective, transactions are completing, both on a freehold and leasehold basis, which is a good sign! From industrial units in Newbridge, retail units on Leith Walk to Grade A offices in Edinburgh’s West End, deals are occurring.
As is stands, the Edinburgh Property Market in general terms is continuing to remain strong given the long list of macro and micro economic factors conspiring against it. Occupational demand in retail locations throughout the city remains mostly resilient. Most notably, popular secondary retail locations such as Stockbridge, Bruntsfield, Elm Row and Morningside all perform extremely well with high quality tenants being active and present in these locations. Furthermore, the mixture of national occupiers and local businesses appears to be well balanced, which is a sign of a healthy high street. Vacancy rates and void periods also remain very low in these destinations.
Higher end ‘prime’ city centre shopping destinations in Edinburgh city centre (Princes Street, George Street and adjoining streets) have a slower uptake but vacancies are decreasing despite the competition and appetite for occupiers to take on space within the St James development. A stroll along Princes Street, Edinburgh’s former no.1 shopping destination, highlights this point perfectly with the decline in quality occupiers easy to see, as well as multiple to let boards on the street which used to be a rarity.
The office market in Edinburgh city centre is buoyant with many high profile deals happening within the Grade A market. Grade A office space in the city centre has seen a rental increase with gross headline rents pushing in excess of £45 per sq ft. However, where the Edinburgh office market does struggle is the 1,500-3,000 sq ft floorplate size, whereby the types of occupiers for these size of offices are still riding the wave of hybrid working models, and adjusting to the constant changing business environment which ultimately creates uncertainty for businesses of that size who are arguably at a higher risk of changing business environments.
The industrial market has performed strong since the start of 2024. Occupational demand has been encouraging in most industrial locations around Edinburgh and the Lothians. Investor confidence appears to be high, with an abundance of active buyers in the market (albeit a significant lack stock), however, there are some exciting developments happening in popular industrial locations around the city and along the M8 corridor which connects Edinburgh with West Lothian and Glasgow. Overall, there has been an increased activity within the industrial sector with lots of lettings deals taking place, however, in terms of sales, there is a lack of stock currently available to purchase.
Therefore, overall occupational (tenant) demand for all sectors (offices, retail, industrial, land) is reasonably strong despite the constant challenges of the current climate. Tenants are predominantly still signing (on average) c10 years leases with breaks at 5, with incentives being consistent with previous years.
Rents are holding firm across all sectors, but the most notable increase in rents are prime / Grade A office accommodation and new build modern industrial units. The main reason for this rental growth is that the development pipeline lags, and there is a lack of prime stock being constructed. It is hopeful that once construction costs decrease, growth in supply will be seen with more transactions taking place as a result.
In respect of residential land values, the PLC house builders are having to deal with the perfect storm due to continued supply chain issues, labour costs remaining high, high finance charges and build costs which are expected to continue given the government’s rhetoric to create more sustainable carbon neutral homes. Sales rates have slowed, all of which are putting pressure on profit margins. Furthermore, Edinburgh has a land shortage especially in the city centre which is driven by its historic preservation efforts, competing residential
needs and high land prices. These factors limit opportunities for new commercial projects, pushing developers to look outside the city centre or repurpose existing buildings.
In short, it is difficult to accurately appraise and summarise how each sector and their individual nuances within various sub sectors are performing, however, we are seeing the following in Edinburgh and the surrounds:
· Local retail rents – generally increasing.
· Office rents – generally increasing with grade A rents in Edinburgh now £45 sqft+.
· Industrial rents – stabilising following their sharp rise in the last 36 months.
· Land values – short term land decreasing, strategic land generally remaining firm.
On the sales side, things are noticeably slower as active buyers are remaining patient due to the uncertain business environment. The rise in interest rates throughout 2023 and into 2024 has significantly increased the cost of borrowing money and this has undoubtedly led to less sale transactions. Consequently, lenders are more cautious when it comes to commercial real estate, particularly in uncertain economic conditions. This has led to stricter lending criteria, making it harder for businesses to secure financing for property purchases. Higher deposits and more scrutiny of business plans are now required. The knock on effect of this is that vendors see offers subject to finance as too much of a risk.
One must also consider that there are now more aggressive holding costs for commercial property owners. Firstly, the guidance on business rates is constantly changing and there are now stricter regulations on energy efficiency and sustainability in commercial buildings, which can add significant costs for property owners. For example, investors may have had to incur some heavy expense when retrofitting properties to meet new environmental standards, such as improved insulation, renewable energy systems, and energy-efficient heating and cooling. Investors and businesses are increasingly focused on ESG standards, and properties that do not meet these criteria are becoming less attractive.
It can be argued that one of the biggest influences on sales transactions is Edinburgh’s housing shortage. There is a shortage of high quality commercial stock available on the market. In certain sectors demand far outstrips supply, leading to intense competition for available properties. This results in properties often selling quickly, off market or above the asking price, or in “closing date” scenarios, where multiple bids are submitted at once. This in turn can deter buyers from exploring opportunities.
In conclusion, Edinburgh’s property market, like many cities in the UK is facing many threats from multiple directions. However, it is evident that Edinburgh remains a highly attractive place to invest in property due to its robust economy, resilient sectors, strong rental demand and long-term price growth potential. The city’s status as a cultural, educational, and financial hub, combined with its desirable quality of life and ongoing infrastructure developments, ensures strong demand for commercial properties across all sectors.
Graham + Sibbald is one of the UK’s leading property consultancy services. Starting in Dundee, Scotland in 1959, the firm has continued to expand with a total compliment of 21 office from London to Inverness, over 250 staff and offering over 20 different service lines. We may have grown, however, our knowledge is still unrivalled – we are nationwide but local-wise.
