Scheduled to complete in 2020, 850,000 sq ft of new retail and leisure space delivered by Edinburgh St James will further enhance Edinburgh’s position as an international destination. This redevelopment, amongst others, is encouraging a gravitation towards the east of the city centre.

Retailers are beginning to favour the best space towards the east end of Princes Street in anticipation of increased footfall following the redevelopment of Edinburgh St James. Savills anticipates that this will spur future rental growth. Apple, for example, took space on 10 Princes Street in 2014 in anticipation of the redevelopment.

Established rental growth over the past five years on George Street has seen rents reach around Zone A £200 per sq ft, which are now beginning to level off. Certain retailers located on George Street are withholding from agreeing longer lease commitments at their existing premises as they wish to ascertain how the area around Edinburgh St James evolves.

Edinburgh St James will relieve the pent up demand for larger stores, offering international mid-market retailers unit sizes which they have been unable to obtain in Princes Street and George Street. The 17,000 sq ft Everyman Cinema, 30 food and beverage units, the W Hotel’s 214 rooms, alongside high quality residential units, will provide a truly mixed-use environment.

Office market boost

The redevelopment of the St James Centre will act as a further magnet to office occupiers to the east of the city centre due to the quality of its amenity provision, which is becoming an increasingly important factor in attracting and retaining staff.

During the first half of 2017, the Government Property Unit (GPU) pre-let 190,000 sq ft of space at New Waverley, which is located only a 10 minute walk away, whilst Baillie Gifford signed for additional space at The Cube. Aberdeen Standard Investments are owner occupying 6 St Andrew Square, which also offers a strong rent for leisure accommodation in the city.

With 1 St Andrew Square the only Grade A space currently available in the traditional city core, the delivery of 60,000 sq ft of speculative office space at The Mint in Q2 2019 will ease pent up occupier demand.

New hotel development

The strength of Edinburgh’s tourist market is supporting further hotel development, with an additional 2,400 rooms in the development pipeline by 2020, reflecting a 17.5% increase in stock. In percentage terms, this exceeds other major regional cities including London, which is expected to see a 10.3% increase in stock, and Glasgow, which is expected to see stock levels rise by 12.3%.

Increasing hotel stock plays an important role in supporting further growth in overseas arrivals, together with the knock on benefits this has for retail sales in the city and in turn retailer demand. Further infrastructure improvements will no doubt play a more vital role.

Edinburgh airport’s five year £220m investment plan, which is envisaged to increase passenger numbers to 16.5m by 2021, will play a key part in driving overseas visitor growth, and in turn, hotel and retail sales performance in the city. The airport’s goal is to double the number of passengers to 25.8 million by 2040.

While a significant investment, it does lag behind other similar sized European cities. For example, Copenhagen is also planning to double capacity, taking passengers to 40m over the next 25 years, an 11m increase on current passenger numbers, largely through increasing capacity for intercontinental routes.

In order for Edinburgh to remain attractive as a visitor destination, with increasing competition internationally from within Europe, delivering new hospitality and retail space as part of wider attractive mixed-use environments will be imperative.

Residential markets: city centre pushes out

There are three main residential themes in the city centre. Firstly, potential for strong value growth in the traditional core. This is the result of the city’s geography, historic nature and currently a lack of stock, particularly at the upper end. For example, the number of transactions in EH3 are 11% lower than the previous year. This is a result of Land and Building Transaction Tax (LBTT) and a lack of stock.

Secondly, residential conversions are achieving strong values. These properties have often been townhouses converted back to residential from office space. This type of development will continue, alongside upper floors of commercial space. This cluster of properties have provided much needed stock, around George Street, and we would anticipate further conversions to provide for this market as and when opportunities become available.

Finally, residential demand is pushing east. The strongest growth is taking place along Leith Walk, particularly in the areas closest to town, with values up 15% year on year in EH7. Value growth is reflecting the impact of recent and proposed regeneration projects both for sale and rent. The growth is slightly lower further east at 6% year on year, still above the city average.

Mid-market rent development at Western Harbour combined with CALA’s waterfront scheme will consolidate development around Ocean Terminal and Newhaven. Making sure the infrastructure is in place to serve these new neighbourhoods will be essential to creating a sense of place and connecting them to the city centre.

The Tram extension (decision not expected until autumn 2018), amongst other strategic investment, could facilitate the redevelopment of brownfield sites in this part of the city in a connected and strategic way.

^{Source: AMPM, Savills Research, Registers of Scotland}