Until recently Edinburgh suffered from two severe problems — a surfeit of offices and a shortage of shops.
Today the former has largely disappeared, while the latter could, if all the current proposals were to go ahead, give the city a retail development boom such as it has probably not seen since the development of the New Town in Georgian times.
However, it is highly unlikely that all the planned retail schemes will be allowed to go ahead. For there are no less than four major projects proposed within the city’s administrative area, along with two more in Lothian Region’s area, all to the western side of the city.
And while there is no denying the fact that Edinburgh needs more retail space, especially to the west, these schemes totalling more than 3m sq ft would rather overdo things.
As things stand at present, it appears that the local authorities concerned have rather ducked the issue of which schemes should go ahead. The decision now rests in the lap of the Secretary of State for Scotland.
Within the city boundaries there are projects proposed by Marks & Spencer, Wimpey and Asda in consortium as well as by Cameron Hall Developments, Caledon Park and James Miller, while in West Lothian both Rover Group and Landmark have proposals for schemes of around 1m sq ft.
Of the projects proposed within the city area, Edinburgh District Council favours the M&S/Wimpey/ Asda scheme known as Maybury Park, south of the A8 Edinburgh/Glasgow road. This development is a mix of 400,000 sq ft of retail space along with housing and a high-technology industrial park.
However, Miller have proposals for a 250,000-sq ft scheme close by at Hermiston Gait, while Caledon Park want to carry out a 180,000-sq ft project at The Craigs.
All three of these schemes have been held up as a result of Lothian Region’s decision back in May to turn down planning consent until the completion of the extension of the M8 to the city’s western bypass.
Meanwhile, Cameron Hall and Glassedin Securities have their proposals for Metro Scotland, a huge 300-acre development at Edinburgh Airport. This scheme includes retail, leisure, business and hotel uses.
In West Lothian, a development of some 1m sq ft is planned by Rover Group for the former BL plant at Bathgate, while Landmark plan a similar-sized scheme at Whitrigg, near Whitburn.
Aside from such major projects, Makro have plans for a cash-and-carry warehouse scheme at Sighthill, B & Q propose a Supercentre at Calder Road and Batleys are to develop a 110,000-sq ft cash-and-carry warehouse at Newbridge.
The major developments proposed to the west of Edinburgh have raised fears in some quarters that the city-centre retail sector could be adversely affected. There has been some concern expressed that Princes Street could lose trade to a suburban shopping complex with good road access and free parking.
As agents Gumleys point out, the shopper with money does not actually need Princess Street if there is a more accessible alternative.
To balance this view, Graham & Sibbald say that while a development such as the proposed Metro Scotland could well have an effect on Princess Street, even so there will still be a need for central shopping, partly generated by tourism — an important element in the central Edinburgh retail economy in both the Old and New Towns.
Jones Lang Wootton also have some hesitancy concerning the shopping development proposals to the west of the city and their possible impact on the central area. On the other hand, there is no doubt that demand for central area quality retail units exceeds supply.
Indeed, Kenneth Ryden & Partners argue that for a city of its size and importance, Edinburgh is undoubtedly under-shopped. And to make matters worse it is not always easy to meet the demand for large units on Princess Street where, because of the original development plans with narrow access lanes to the rear, shop units are often relatively shallow.
What is more, as Gumleys point out, when the New Town was originally laid out Princes Street was not intended to be the principal shopping pitch — that role was to be fulfilled by George Street. In the event the prime shopping is now concentrated on a one-sided street with a very busy traffic flow, while the two-sided George Street, with a relatively lower traffic flow, takes a secondary role in catering for speciality shops and the financial sector.
Top rents on Princess Street are generally agreed to be over £100 per sq ft on a 30ft zone A and some put the level for the best space as high as £120 per sq ft. Indeed, Eric Young & Co say that it is believed that the deal agreed last year by Marks & Spencer on the former W H Smith unit reflected a zone A rent of over £120 per sq ft.
In that deal, on which Blair Kirkman advised M&S, an undisclosed premium was paid for the lease of the property, which included not only the 11,300-sq ft W H Smith unit but also the adjoining shop occupied by Russell & Bromley. The passing rent was £396,000.
Given the tight supply in the prime stretch of Princess Street, there is a knock-on effect on demand in pitches immediately adjoining on Hanover Street, Frederick Street, Castle Street and George Street. Graham & Sibbald put rents in these locations at close to £50 per sq ft, while, off the western end of Princess Street, in Shandwick Place, good units are fetching £25 to £30 per sq ft.
This view is supported by Eric Young, who add that in the cheaper western end of Princes Street £65 has been achieved on review.
Moving to the eastern end of Princes Street, Gumleys say that the troubled Waverley Market centre next door to the North British Hotel is now starting to come right. Gumleys, who are joint agents with Richard Ellis and Donaldsons, say that the original aim at Waverley Market was to be highly selective as far as tenant mix was concerned.
Unfortunately the result was that the centre came to be regarded as a place for wealthy tourists rather than for the local people. In response to this the strategy has been revised to create a centre which has a special style but is nevertheless a place for everyone to shop.
As a result all but seven of the units in the centre are now let, with rents achieved at between £20 and £25 per sq ft overall. Efforts are also being made to give the centre a stronger visual impact on Princes Street.
What would undoubtedly be helpful, if it were feasible, would be to extend Waverley Market downwards so as to link directly into the busy Waverley Station. At present much of the pedestrian flow goes up Waverley Steps into Princes Street, bypassing the shopping centre, and if anything cohld be done to divert this through the centre it could hardly fail to improve trading levels.
And if Waverley Market could be extended in this way, it would be as well to do it sooner rather than later, bearing in mind the plans for redevelopment of the neighbouring North British Hotel.
The North Brit already has access to the station at concourse level and the plan is to redevelop the hotel to create a 120,000-sq ft retail galleria on the lower five floors, with seven floors of hotel accommodation above. The idea is that, apart from ordinary retail units, the scheme will include a night club as well as a health centre, restaurant and 600 parking spaces — the last of which are in particularly short supply in central Edinburgh.
As far as actual deals are concerned, Hartley Cowley & Co acted in the acquisition by opticians Miller & Santhouse of the lease of 132 Princess Street as their flagship shop. A new 25-year lease was subsequently agreed at an initial £80,000, but in turn they have sublet the upper part to neighbouring occupiers Virgin Megastore at £13,500 pa.
The same agents acted for hairdressers J B Green in assigning the lease of 4 Castle Street to High & Mighty, for whom Knight Frank & Rutley acted. The passing rent on the 1,000-sq ft unit was £27,500 pa and a premium of over £30,000 was sought.
Competition for the unit was such that in the event a price comfortably over £40,000 was finally paid.
Near by, in Frederick Street, Gumleys were agents earlier this year in the letting of the former John Smith wool shop at no 10 to Holland & Barrett, who were represented by Churston Heard. The 2,240-sq ft shop, Holland & Barrett’s first in Edinburgh and third in Scotland, was let at over £50 per sq ft zone A.
Gumleys are also agents, along with Donaldsons, for John Laing’s Toll Cross mixed shop, office and housing scheme. There is already an office element under construction for the PSA and a housing association is to carry out a residential project.
It is hoped to start work on the retail element early next year to provide a 30,000-sq ft food store and 22 unit shops with parking for 300 vehicles. Talks are currently in hand with a potential anchor tenant.
Aside from standard shops there is also a keen demand for retail warehousing space, as is shown by the preletting by John G McGregor of their 35,000-sq ft redevelopment of the Dobbies Garden Centre site at Maybury Roundabout to the west of the city.
The development is prelet to RMC at £4 per sq ft and forward-funded by British Airways Pension Fund at an initial 8% yield.
In another retail warehouse deal, Bell-Ingram recently acted for BTR Holdings in subletting a 21,000-sq ft warehouse at Newbridge to Booker Cash & Carry. The subletting was agreed at the existing passing rent on the headlease of £37,000 pa.
Looking at suburban markets, Kenneth Ryden say that among the strongest local centres are Corstorphine, Morningside and Stockbridge, which attract good interest. Indeed, Ryden say that the highest supermarket review rent yet seen in Scotland has been recorded in Morningside.
Offices
Turning to the office sector, this is an area in which Edinburgh has been something of a lame duck until relatively recently. The problem was that in the 1970s a surge of office development took place in the city in anticipation of the setting-up of a Scottish Assembly.
Unfortunately, that anticipation proved to be a misjudgment, with the result that Edinburgh ended up with no assembly and a lot of spare offices. It is only recently that the office surplus has been absorbed and Edinburgh has found itself in the happier position, from the developers’ point of view, of having an office shortage and some much-needed upward pressure on rents.
A recent survey carried out by Kenneth Ryden showed that the office supply stood at between 315,000 sq ft and 320,000 sq ft, compared with around 690,000 sq ft in March 1985 and a peak surplus of some 850,000 sq ft in 1982-83.
Take-up in the 12 months to March this year ran at around 620,000 sq ft.
These statistics covered offices of all types in a variety of locations. When modern open-plan offices are considered in isolation, it is clear that there is nowhere near enough space available to satisfy the demand.
Earlier in the year, Rydens carried out a study on behalf of a client which identified space available, space which might be vacated and become available and potential future developments. At that time, modern space totalling some 87,000 sq ft was identified as being available in seven buildings.
Within the space of three months, only some 13,000 sq ft was still available and that was in Atlantic House in an off-pitch location in Gardners Crescent, Coatbridge.
In June, Kenneth Ryden had a list of identified space requirements of well over 300,000 sq ft. This included requirements from the PSA for over 100,000 sq ft in various parcel sizes, another 100,000-sq ft-plus from seven professional firms and requirements from two banks and two major Scottish institutions.
Rent levels on good-quality refurbished Georgian office space stands at around £7.50 per sq ft, having seen an annual compound growth rate of 17% since 1985, say Rydens. At the same time, modern open-plan space has recently fetched £9.50 per sq ft in Capital House (shown below), where stockbrokers James Capel took the last remaining 4,500 sq ft.
Capital House is a 55,675-sq ft development in Lothian Road, carried out by Miller Developments. When Miller first undertook the development there were considerable doubts in many quarters as to whether a scheme in what was then regarded as a distinctly off-pitch location could be made to work.
Events have fully justified Miller’s courageous decision.
Jones Land Wootton and McEvoy Vigers were the agents for Capital House, and Kenneth Ryden acted for James Capel in the final letting.
It is now accepted that Capital House proved an important point in the context of the Edinburgh office market. Location can take second place if the quality of the space is right. The demand is there for modern office space and if the developer can supply it he will find the tenants.
The problem, however, is to find opportunities to carry out suitable developments. There are few such opportunities in the prime office area in and around Charlotte Square or the West End area of the New Town. The Georgian terraces of the New Town are heavily protected, and rightly so, but the price of that protection is that Edinburgh has, until recently, offered modern financial tenants little of the space which they prefer.
However, for many years, official policy was to put severe restrictions on office development in the central area per se, while trying to promote development in the suburbs. This policy, unfortunately, did not take into account two rather important facts — first, that many firms, particularly in the financial sector, actually need to group closely together and, second, that they do not necessarily need to do so in Edinburgh.
Under that restrictive policy, there is little doubt that Glasgow gained some tenants at Edinburgh’s expense and there is no way of judging how many potential employers were lost altogether after having failed to find space for branch operations in the city.
The Lothian Region Structure Plan introduced in 1985 has, fortunately, brought in a more realistic policy which recognises the importance of central Edinburgh in office employment terms. And well it might, in view of projections that office employment in the financial sector will grow by around 33% in the decade ending in 1991.
Indeed, it is estimated that by 1991 the city will need an extra 1m sq ft of offices overall, of which around 60% will be needed in the central area.
The problem from the planners’ point of view is where to put that space, given the conservation and traffic restrictions which already hold back development in the established central core. The solution to that problem has been to promote an extension of the traditional core to an area between Lothian Road and Haymarket, dubbed West Central Edinburgh. It is in this very area that Miller have scored their success with Capital House, so vindicating the planners’ view of it as a location for office expansion.
The redevelopment strategy for the area identifies eight potential office development sites which could carry a maximum of 1.62m sq ft of offices, although the planners’ preferred options are for around 1.06m sq ft on seven of the sites.
Of this total, some 370,000 sq ft will be on Lothian Road and associated with the planned Edinburgh International Conference Centre. London & Metropolitan, advised by P J Leggate and Jones Lang Wootton, have been selected as developers of the exhibition complex, which includes over 200,000 sq ft out of the 370,000 sq ft noted above.
Aside from the Lothian Road sites, the planners’ favoured sites will provide: some 180,000 sq ft on Morrison Street; 150,000 sq ft on the West Approach Road; 72,500 sq ft on Newport Street; 200,000 sq ft on Semple Street; and around 90,000 sq ft on Haymarket Terrace.
Apparently, London & Metropolitan are basing their office proposals for the international conference centre on the projection of a rental level of £12 per sq ft.
And, according to Jones Lang Wootton, such a rent is far from unrealistic — already the minimum quoted for good modern space is £10 per sq ft and prime new space, if it existed, could well fetch £12 today.
Rental growth potential in the city is seen as being strong in view of the restricted supply of modern space, and Jones Lang Wootton say that £11 per sq ft has already been achieved on space in Charlotte Square. There is, say JLW, virtually no good-quality unit of over 10,000 sq ft now available in the city.
Currently under construction, JLW note, is Grosvenor Developments’ 30,000-sq ft project at Dundas Street. This is not in a prime location, but it is a high-quality scheme with the benefit of 30 parking spaces and it is scheduled for completion late next year. JLW are joint agents with P J Leggate & Co.
Another new scheme, due to start within six months, is Walker Developments’ 20,000-sq ft project in Belford Road.
This development, for which Jones Lang Wootton are sole agents, includes 15 parking spaces and is likely to be ready for occupation at the end of 1988.
JLW say that preletting negotiations are in hand for Calor Developments’ Rutland Court scheme in Canning Street. This 30,000-sq ft-plus scheme includes 18 parking spaces.
Meanwhile, Hartley Cowley are sole agents for a development by the Pru at 1-2 St Andrew Square which is scheduled to start at the end of the year. This is a 25,000-sq ft redevelopment behind retained facades which should be ready by the end of next year.
However, the biggest single development proposal in the city at present — indeed, it is among the biggest schemes ever put forward in Edinburgh — is Murray International Metals’ planned development of nearly 600,000 sq ft in Morrison Street, off Lothian Road.
D M Hall are MIM’s consultants on this project, on a 6.5-acre site which formerly constituted the Port Hamilton Basin on the Union Canal. MIM propose a complex of four- and five-storey buildings clustered around squares and courtyards.
The scheme, which is being considered by the planners at the moment, contains almost 366,000 sq ft of offices along with residential and commercial space and a hotel which will include over 10,000 sq ft of conference facilities and 650 parking spaces.
MIM’s proposed development is not far from the site of London & Metropolitan’s International Conference Centre development on Lothian Road and if it is given the go-ahead it will give further strength to the aim of creating a whole new office environment in West Central Edinburgh.
However, Murray International Metals are not restricting their activities to giant projects in the city centre, for they also have a major project under way at South Gyle, west of the city on the road to the airport.
This is the 10-acre Edinburgh West Office Park, for which D M Hall are the sole agents. MIM are building their own 30,000-sq ft new headquarters on 2 acres of the site, and Hall have lined up tenants for two purpose-built office buildings of 25,000 sq ft and 30,000 sq ft.
Such has been the success of the office park so far, say Hall, that it is now likely that work will go ahead on a 60,000-sq ft speculative office scheme on the site.
It is probably true to say that until not so very long ago anyone who had suggested building 60,000 sq ft of speculative offices at South Gyle would have been regarded as being certifiable.
Ultimately, say the agents, the Edinburgh West Office Park can provide a total of over 200,000 sq ft of accommodation.
D M Hall go no further than to say that rents achieved at South Gyle are “strong”, but other Edinburgh agents are not so coy, estimating rent levels at between £6 per sq ft and £8 per sq ft.
Meanwhile, back in the city centre, the local authority is studying submissions for the development of a site of just over an acre in Castle Terrace, backing on to the Royal Lyceum Theatre and adjoining the Usher Hall. This is in a sensitive location, surrounded by listed buildings, and the planners are keen to see a scheme which reflects this.
The council says that a number of alternatives will be considered, including cultural, hotel or prestige office uses.
The planners say that whatever happens, they will insist on a scheme which makes a positive visual contribution, by high quality of design, materials and finishes. It will also have to make a functional contribution by providing public malls, atria, gallery/exhibition space and the like, so that an inaccessible, purely office, scheme would appear to be ruled out.
Turning to the investment market, Jones Lang Wootton say that the prospects of rental growth have boosted interest.
Indeed, they acted in the sale of Capital House to Postel in a £5m deal announced in April. The deal gives Postel an investment with a blue-chip tenant mix that includes not only James Capel but Citibank, British Telecom, Charterhouse Investments and Save & Prosper.
In the case of Erskine House, the investors are the Church Commissioners for England, who are funding a £10m refurbishment by Cussins Property Group. Erskine House is a 1960s building which Cussins bought from BP Pension Fund for around £6m.
The intention is to carry out a high-quality refurbishment which is scheduled for completion by the end of next year.
However, it is unclear just how much of the 75,000-sq ft building will reach the market, since letting agents Chesterton Lalonde are talking to the existing tenants, many of whom are expected to want to stay.
On a rather smaller scale, Sun Life paid £665,000 for London & Metropolitan’s office scheme at 49 Queen Street, to show an initial yield of 5.5%. This 4,400-sq ft building was let to solicitors McClure Naismith at around £7.25 per sq ft.
JLW and Wright & Partners were the selling agents, while Kenneth Ryden acted for Sun Life.
Earlier in the year a yield of around 5.5% was also recorded when City of Westminster Superannuation Fund bought 10 and 11 Atholl Crescent. The fund paid around £1.16m for the two adjoining buildings which, by coincidence, were also let to a firm of solicitors, in this case Lindsays.
The vendors, Dunedin Property Investment and Life Association of Scotland, were represented by Conroy Hunter and Richard Ellis.
A rather higher yield was achieved on Rosebery House in Haymarket Terrace, which was bought by Provident Mutual Life Assurance Association for £4.4m to show an initial 8%. The vendors were Wimpey Property Holdings, who were advised by Donaldsons, while Gooch & Wagstaff represented the purchasers.
The 70,000-sq ft building is let to tenants including Sun Alliance, the Scottish Development Agency and Ford Motor Co.
Industrial
Of all the property sectors, the industrial market in Edinburgh appears to be the weakest. A combination of factors helps to ensure that there is a surplus of space and a tenants’ market in most localities.
And that same combination of factors also ensures that rent levels are held back to a point where it is not feasible to carry out new development schemes except in the purpose-built sector.
The problem is one which affects not only Edinburgh but most, if not all, of the industrial areas of Scotland — it is the presence of a major public-sector element in the market which is, to a large extent, free of the economic restraints of the private sector.
As a result, albeit that the public-sector agencies are acting with best of intentions, Edinburgh has in most people’s view more industrial and warehouse space than the market can currently absorb.
D M Hall & Son say that rents are now at a level at which speculative development in the private sector is simply a non-starter. Current levels for 5,000-sq ft-plus units are around £2 to £2.25 per sq ft, but a rate of £3 is needed to make development worthwhile.
There have, however, been design-and-build schemes carried out at close to £3 per sq ft, they add.
Nursery units can fetch rents around £3 per sq ft and they are still going well both in central Edinburgh locations and out at Leith. In the nursery sector there is some private involvement, but the Scottish Development Agency has made a lot of the running, although there is little under construction at present in either the public or private sectors.
At the other end of the scale, D M Hall perceive a shortage of new larger units, but again rents will have to rise if developers are to be encouraged to risk anything apart from purpose-built schemes.
Looked at overall, D M Hall say that the industrial areas to the east of the city tend to move slowly, with some units now having stood empty for some years.
In contrast, units to the west at South Gyle let readily, thanks to the excellent road location with access to both the Glasgow and Aberdeen main links. Further out to the west there is plenty of land available and in the more outlying industrial areas it is the tenants who tend to dictate terms.
Jones Lang Wootton believe that the letting market is getting better and that there is a good demand in the investment sector, albeit at high yields.
There is also, say JLW, a strong demand for retail warehousing space, with fierce competition for sites. On the whole, they say, the planners are not actively anti retail-warehouse users but they are fussy about to whom they will grant planning.
Earlier this year Tarmac subsidiary West Mercian Property sold 8.5 acres of their 27-acre M8 Estate at Newbridge to Batleys for around £400,000. Kenneth Ryden, who are agents for the estate, say that Batleys plan a cash-and-carry warehouse scheme of some 110,000 sq ft on the land which they have acquired. The remaining 19 acres of land is to be sold off in fully serviced lots of an acre and upwards at prices equating to £75,000 per acre. Servicing of the site should be completed in November.
Rydens are also agents for the 25,000-sq ft Debenham warehouse out on Dalry Road, which they are looking to either sublet or assign — the passing rent is £48,000 pa.
Looking at the market overall, Kenneth Ryden say that the industrial sector is active and that the surplus is being soaked up, although deals do still tend to take time.
Rydens support the view that the main centre of demand is to the west of the city. And they add that the major food retailers are tending to look further and further out in order to find large 20-acre to 30-acre sites to provide major distribution centres.
Taken overall, the outlook for Edinburgh at present seems distinctly promising. Demand is strong for both prime offices and shops and even in the industrial sector the market is improving.
Prospects of rental growth in both the retail and office markets combine to ensure that there is not only healthy investment interest in the city but a ready response from both the funds and the developers when new projects are on offer for development.
Add to this the encouragingly positive attitude of the local authority and it is hardly surprising that there is a new sparkle in the eyes of the Edinburgh property world.
What is more, the city authorities are determined to further enhance Edinburgh’s role as a cultural and tourist centre. Plans are in hand for improving the central area of the Old Town, which many feel has been sadly neglected, in order to take greater advantage of the tourists who are drawn to the castle like moths to a candle.
And the development of the International Conference Centre can only further strengthen the city’s role as a major international centre, particularly on the world cultural stage.
The Edinburgh Festival is without doubt among the leading international cultural events year after year.
Add to this the city’s role as a financial and hi-tech centre and it is clear that Edinburgh at the moment has a lot running in its favour.
As one agent commented, looking at Edinburgh’s role as a leading financial and office centre: “We are fighting back against Glasgow now, and about time too!
