2022 FORECAST
Edinburgh
- The Edinburgh economy is expected to grow by an impressive 5.5% during the course of 2022, more than double its pre-Covid ten-year average of 2.6%
- The main conversations for the city are around climate change, and while independence is on the backburner for now, this may come again. Otherwise, the lack of development land continues to be seen as a constraint across the majority of sectors.
- Despite the restrictions in Scotland being a key constraint on the number of people returning to the office, a dearth of available prime space means that new supply is in strong demand.
- The impact of changing retail habits will continue to drive Princes Street’s offer. The loss of major department stores including Jenners along the street could put a dent in consumer spend although the street will benefit from the return of international tourism, on which the city depends so much- in time.
- Edinburgh saw exceptionally strong house price growth in 2021, at 13.5% well ahead of the national average. This trend existed before the pandemic and has been accentuated since. It has been underpinned by a long running supply/demand imbalance which has fed through to a highly competitive land market.
- Build to Rent (BtR) is emerging with earnest in the city, with five schemes at various stages of construction/planning. The city will continue to see strong demand from investors although tight land supply will limit opportunities.
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Economy
Offices
Retail
Industrial
Residential
Economy
Edinburgh is forecast to see its GVA increase by an impressive 5.5% in 2022, more than double its pre-Covid ten-year average of 2.6%. This will be driven by growth in Accommodation and Food services, which is forecast to see growth of 28.8%, whilst arts and entertainment will increase by 16.9%, with education increasing by 9.8%. The increasingly important Information and Communication sector is predicted to grow by 6.5%. This is a marked rise on the 2021 figure of 3.6%, but well below the double-digit growth that was typically seen pre-Covid.
During the course of the year, employment rise by nearly 8,500 jobs in 2022, of which around a quarter (2,100) will be traditionally office-based. This will take employment to a record high of over 382,000. The unemployment rate is forecast to decrease from 4.2% in 2021 to 3.5% in 2022, although that is still well above the pre-Covid figure of 1.7%.
The main conversations for the city are around climate change, and while independence is on the backburner for now, this may come again. Otherwise, the lack of development land continues to be seen as a constraint across a number of other sectors.
EDINBURGH DASHBOARD – ECONOMY
Offices
Despite the restrictions in Scotland being a key constraint on the number of people returning to the office, there continues to be demand from occupiers who are willing and able to take a medium-term view on their occupational needs. This has led to increased levels of activity during the latter half of 2021 – including Cairn Energy, Shepherd and Wedderburn and Fanduel – with the focus very much on prime and new build accommodation in the city. While there are examples of occupiers looking to downsize their current occupational footprint, the vacancy rate in Edinburgh city centre has seen little change during the course of the year, at 6.5%.
With a dearth of good quality space available in central Edinburgh, new supply coming through is seeing strong let in advance of completion, including at 2 Freer Street and 1 New Haymarket Square. Consequently, there is an acute shortage of prime office space in the city centre. Ediston’s mixed-use development ‘New Town Quarter’, which includes an 80,000 sq ft office, is the only other city centre development on site. This bodes well for the comprehensive refurbishments underway or pending, including Excel House (50,000 sq ft), 24-25 St Andrew Square (48,000 sq ft), 116 George Street (35,000 sq ft) and 60 Morrison Street (80,000 sq ft).
With a time-lag in the city centre development pipeline, we expect some of the pent-up demand will look towards West Edinburgh and fringe out-of-town locations, where good quality, grade A offices with large floorplates exist, as well put pressure on prime rents.
Occupiers with net zero carbon targets in the short-medium term are aware that they need to act sooner rather than later in order to acquire space that will help them fulfil their targets – with the Scottish Government looking at their own occupational portfolio as a result, which is now made easier due to the release of the Path to Net Zero guide released in 2021.
EDINBURGH DASHBOARD – OFFICES
Retail, Hotels and Leisure
The opening of St James’s Quarter has revitalised the retail and F&B offering in the city, even if visitor numbers thus far have understandably been muted. Owner Nuveen has sold its stake in the Bullring to concentrate on the asset, stating “it will be the main long-term focus”. This, and the vitality of the city, contribute to the expectations that we will see higher than average growth in retail spending across the city – 3.5%, compared to 2.1% for other major cities. The city continues to see new openings, driven by the St James’ Quarter including & Other Stories, Bershka, Breitling, Calvin Klein, Goldsmiths, Kurt Geiger, Lego, L'Occitane and Stradivarius. Vacancy in the city is relatively low compared to a number other major cities – 14% in town, but just 6% across prime retail units. However, the decline of Princes Street is a concern and loss of major department stores including Jenners along the street could put a dent in consumer spend. International tourism, on which the city depends so much, will rebound in good time.
The leisure offering of the city continues to evolve. The Johnnie Walker experience, which opened during 2021, will attract visitors old and new to the city. Otherwise there are a number of longer term development plans. The 1,000 seater Dunard Centre won’t complete until 2025 and it will be interesting to see how the plans for the previously proposed Edinburgh International Arena evolve. The New Town Quarter development will also open in 2025, and will offer 359 new homes, a 116-room hotel, 75,000 sq ft of office space as well as retail and leisure offerings.
The latter half of 2021 saw strong recovery by the Edinburgh hotel market, with occupancy and rates recovering close to pre-pandemic levels. The return of major events returning with high attendance (including the Six Nations) and restrictions lifted on international tourism should see continued market recovery.
During the year, the city will see a few high-profile luxury entrants into the city. The five star Virgin hotel is expected to be the first Virgin in the UK – although it is vying with Glasgow to which one opens first; while the W will be another five-star opening in winter; with Gleneagles opening a club venue in St Andrews Square in spring. On Princes Street, A Tribute by Marriott will start construction shortly, and is due to complete by 2024.
Due to the city’s unique strengths as home to the Scottish Government, substantial economic hub and international tourism hotspot we believe the hotel sector will see strong recovery in 2022, with annual performance returning to 2019 levels by 2023.
EDINBURGH DASHBOARD – RETAIL
Industrial
There is no big box market in Edinburgh, with EuroCentral’s offer catering for the city. There continues be activity in the mid-box market servicing the surrounding areas. However, unlike the rest of the UK, rental growth is being driven by increasing land and build costs rather than the weight of demand. Edinburgh continues to see strong demand for quasi-R&D space.
There is increasing demand for film studio space in Glasgow and across the city, off the back of the success of Pyramids Business Park in West Lothian – with London & Regional acquiring the asset in late 2021. Plans in the pipeline include an application for a 147,000 sq ft, grade A logistics scheme at Sighthill by Chancerygate and Bridges Fund Management.
EDINBURGH DASHBOARD – INDUSTRIAL
Residential
Edinburgh saw exceptionally strong house price growth in 2021, at 13.5% well ahead of the national average. This trend existed before the pandemic and has been accentuated since. It has been underpinned by a long running supply/demand imbalance which has fed through to a highly competitive land market. As with other cities, suburban ‘commutable’ areas have seen particularly strong demand and activity, reflecting the reassessment of housing need following the pandemic. We expect this strong demand for Edinburgh property to continue in 2022 and combined with restricted supply, will lead to another year of strong price growth and activity.
Build to Rent (BtR) is emerging with earnest in the city, with five schemes at various stages of construction/planning. The city will continue to see strong demand from investors although tight land supply will limit opportunities. This has been reflected in the activity so far with investors looking outside of central locations. As with the wider market, we expect suburban BtR opportunities to attract a lot of attention in 2022. Investors seem to have largely shrugged off concerns around rent controls and political risk which had proved something of a hurdle for Edinburgh. As such, good opportunities that come to market will be hotly contested next year.
Much like Edinburgh’s housing market, the PBSA sector could be described as ‘red hot’, driven by a long running supply/demand imbalance. This is unlikely to alleviate any time soon due to the difficulty of site assembly and planning in the city. Combined with Edinburgh’s strong student demand profile, particularly with international students, we expect investor demand to remain very strong and yields to compress further in 2022.
EDINBURGH DASHBOARD – RESIDENTIAL
2022 Forecast Edinburgh Digital Event
Watch our recent live event, where we brought together a series of experts to explore the key drivers and predictions for Edinburgh and Glasgow in the year ahead.
Broadcast Wednesday 2nd February
