By Heather Nisbet, Morton Fraser
Commercial property is on the up in many parts of the UK. Generally, we are seeing modest improvements, but at least there’s movement in the right direction.
However, it would be wrong to suggest that demand for space from retailers and other occupiers is rising across the board. Indeed, the recession is still biting, particularly outside the larger cities and in traditional high street locations. But prime retail and office locations such as those found in Edinburgh are seeing an upturn in confidence and demand.
Whilst some of the retail demand is from those who already have a presence in the UK market (often involving only a change in location, rather than an expansion) there are many new entrants to the market. Office take up is also on the rise, if the location and the price are right, with Edinburgh currently showing better growth in this sector than other parts of Scotland.
Re-emergence of speculative development
Speculative development, which almost disappeared in the depths of the economic downturn, is beginning to happen again in parts of the UK, including Edinburgh and Glasgow. As with demand for space generally, such speculative activity is patchy, but undeniably present.
Among the current speculative developments in the pipeline for Edinburgh is the proposed completion of the Quartermile development in Edinburgh, where Morton Fraser is based. £80m of funding has been secured to allow Quartermile to complete the original vision and develop the final buildings on the site, providing more than 200,000 sq ft of new office and retail space. It’s believed to be one of the largest speculative office funding deals to have ever been undertaken in Scotland.
Work is also underway at another Edinburgh site, on the south west corner of St Andrew Square, in preparation for a new development of offices, retail and leisure space, intended to exceed 100,000 sq ft. Nearby, the existing St James Centre is also going to be transformed.
The referendum outcome
Some people think that the removal of some of the uncertainty in the property market, following the ‘no’ vote in the Scottish independence referendum in September, will result in a rise in investment in Scotland. It does seem clear that many investment decisions were delayed pending the result - but how the ‘no’ vote will impact on those decisions is yet to be seen.
We are aware that some potential investors or occupiers inserted ‘yes vote get out’ clauses in contracts entered into before September 18, 2014. For example, if there had been a ‘yes’ vote, the deal would have been off or could have been renegotiated, whereas a ‘no’ vote resulted in the deal going ahead as planned.
Now that the referendum result has been decided, it will be interesting to see just how much the increased confidence drives speculative development. We expect to see more good news for Edinburgh's property sector and exciting times ahead.