A chronic undersupply of small industrial units is creating an opportunity for developers in Edinburgh, according to a report from real estate consultancy, Knight Frank.

The shortage of quality industrial units up to 5,000 sq. ft., combined with consistent demand, means that occupiers face paying a premium on these types of sheds.

Simon Capaldi, associate at Knight Frank, said: “There are a few units drip-feeding into the market in and around Edinburgh, but there are no new speculative developments to satisfy the current need for small, high quality units in the capital.

“The Edinburgh market requires volume rather than scale. Historically, there hasn’t been huge appetite for units of 20,000 sq ft and above. However, we have seen steady requirement for properties between 2,500 and 5,000 sq ft: a trend we only envisage increasing in the short- to medium-term.

“If developers act now, they could take advantage of the latent demand for smaller industrial premises. Many of these units attract a substantial premium given recent market forces, putting landlords in a good position to realise strong returns. This could mean we see more speculative developments come onto the market for release in 2016.”

Knight Frank’s latest Logistics and Industrial Commentary (LOGIC), which gauges trends in industrial warehouses and sheds, found that the availability of new units above 50,000 sq ft fell from 727,054 sq ft to 511,574 sq ft.

That leaves just two available new premises in Scotland’s central belt: Vertex at Eurocentral and Max 380 at the J4M8 Distribution Park.

The biggest deal in Scotland’s central belt in the first half of 2015 was CCG (Scotland) Ltd’s purchase of 122,483 sq. ft. at Titan, Eurocentral. There were another two major transactions involving delivery companies Amazon and Yodel. Both agreed contracts to occupy more than 90,000 sq ft in Eurocentral and Livingston, respectively.

Rents are expected to rise across the board in Edinburgh and Glasgow to Q2 2016, reflecting the lack of substantial new stock available. In Glasgow, well-located modern industrial stock of circa 30,000 sq ft. has achieved increased rents of £6.25 per sq ft.

Sarah Addis, senior surveyor, said: “The market in Glasgow is definitely moving in the right direction – with the majority of Scotland’s larger deals having concluded in the wider Glasgow area. We have witnessed a substantial increase in active requirements for 20,000 sq ft and above, which is positive; however, with a distinct lack of suitable stock, it is inevitable that occupiers will struggle to find suitable accommodation.

“What should give further incentive to developers is that take-up of recently refurbished units in the wider Glasgow area has improved, which demonstrates that where there is quality stock available there is demand to match. As the year progresses, and the lack of new stock is more keenly felt, we could even see rents top £6.50 per sq ft – bringing the city more in line with Edinburgh.”