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TMT demand forcing rents to rise

Tech growth overtaking financial services in Edinburgh

Quartermile 4 twoEdinburgh’s booming technology sector is driving up office rents, overtaking demand from the financial services industry, according to research from real estate consultancy Knight Frank.

This is in line with rising rents in cities around the world that are now home to an increasing number of digital, creative and technology companies.

The firm’s Global Cities: The 2016 Report, found that high profile deals in Edinburgh have seen the TMT sector account for a significant proportion of the city’s total office occupier deals in 2015.

This was highlighted by fantasy games firm FanDuel moving its HQ to larger offices in Quartermile in the capital’s biggest pre-letting for a decade. It will take three floors of the £50 million seven-storey block now under construction (pictured).

Analysis from Knight Frank from 2014 found that the TMT sector accounted for 34% of total take-up in Edinburgh last year, or 251,500 sq. ft.; higher than the city’s financial services sector.

This year, TMT take-up has risen progressively with 39,457 sq. ft. let during Q1 and 41,534 sq. ft. in Q2. This more than doubled to 85,637 sq. ft. in Q3, taking the total to 166,628 sq. ft. for the first nine months of 2015.

Edinburgh city centre has been the principal beneficiary of the rise in TMT take-up. As a result, rents in city centre are showing strong signs of growth and could rise beyond £30 per sq. ft. for prime stock by the end of 2015.

Toby Withall, Office Agency Partner at Knight Frank, said: “TMT companies have performed strongly over the past two years, and now make up a substantial portion of the commercial property landscape in Edinburgh.

“Significant deals from the likes of FanDuel show that the sector is riding high and performing exceptionally well – mirroring some of the activity we have seen in London.

“Take-up in Edinburgh has been strong so far this year, with TMT companies accounting for nearly one fifth of the total in the first half of 2015. With a number of deals on the horizon, we only see that rising and this year’s figure could surpass 2014’s performance and register its best ever year.

“Access to transport links, Edinburgh’s strong academic institutions and a formidable skills base are just some of the reasons why it stands out as a prime location for up-and-coming tech firms.

“The younger workforce, which the TMT sector tends to attract, also has a need for a different mix of amenities and less corporate-focussed micro locations in the city. That could boost take-up from a variety of new businesses looking to provide services to this market.

“What’s particularly encouraging is that steep growth for the TMT sector is likely to have a knock-on effect for the property market, creating fresh demand in the city. Traditionally, other sectors that underpin the Edinburgh market tend to move around to offices of a similar size to their existing premises.”

The positive tenant story in Edinburgh was mirrored in London, with the Global Cities report finding Shoreditch witnessed a 26.3% growth and Southbank 19.8% for the same period. In contrast, expensive but popular hubs like Mayfair only grew by 7% while the City Core saw only 2.4% growth.

Demand for office space in London remains high, and since 2000, the city has created more than 70 million sq. ft. of new space in response to this demand, which is more than the total office stock in Singapore.

However, London’s vacancy rate is at a 14 year low and falling.  This has partly resulted in London, alongside San Francisco, witnessing the fastest rental growth for high-rise offices, according to the Knight Frank Skyscraper index. 

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