COMMERCIAL property rents in Edinburgh could be driven down as a glut of offices vacated by the city's troubled banks come on to the market.
According to one property firm, average rents will drop 10 per cent as Royal Bank of Scotland and HBOS, now part of Lloyds Banking Group, release "substantial" volumes of space into the market. The two banks, both now controlled by the UK governmen
t, are the city's largest private sector occupiers of office space. Under the influence of the Treasury, both are planning to slim down their operations.
And after looking at the effect that this will have on the capital, John Clement, partner at King Sturge property group in Edinburgh, warned: "The market is entirely dependent on the banks getting their act together."
King Sturge experts predict that the banks will release older buildings on to the market. As a result, the "prime" market for new or top-of-the line offices may be relatively unaffected.
And the group has warned that "generous" incentives such as two-year rent-free periods will be necessary for the prime market to maintain its current £29 per sqft levels.
According to King Sturge's UK Office Property Market 2009 report, the forecast 10 per cent decline in Edinburgh is "still fairly modest" compared with central London, where rents are forecast to decline 50 per cent over the next two years.
Clement explained: "The correction will be felt more greatly in central London than in the regions, having experienced a far greater growth cycle over the last three to four years."
He argued that Edinburgh's supply of new offices was limited and, as a result, prices for new offices would remain stable or nudge up slightly to £30 a sqft.
About half of the available new office space in Edinburgh is in a single building, Waverley Gate. Last month, Waverley Gate's developer, Castlemore Properties, went into administration.
Four new buildings are due to be completed in 2009, bringing a further 400,000sqft of new office space on to the market. "This limited supply is being met by limited demand, which should prevent a downward correction on rental values," said Clement.
Glasgow faces a 7 per cent decline in average rents, the "mildest" of any UK regional centre. King Sturge said Glasgow's broad occupier base and the fact that financial services was "less prevalent" than in Edinburgh made it more resilient.
In Glasgow, King Sturge says ten new office buildings scheduled for completion in 2009 will bring 834,000sqft of new office space to the market, causing developers to compete for a declining number of tenants.
Campbell Hart, partner at King Sturge in Glasgow, said 2009 would be a good year for occupiers looking to strike a deal on new office space. "For occupiers in Glasgow, 2009 offers the widest range of choice and the most attractive incentive packages for many years as the market responds and will continue to respond to evolving local and wider economic pressures."
The agency said the City and the West End markets were "likely to be the first to emerge from the downswing next year". It also said "The time is right" for investors to consider buying property again, particularly in London.
