Edinburgh needs to focus more on opportunities outside its immediate boundaries in order to continue to meet the ever-growing demand for homes, offices and hotels and fully establish itself as a global city, according to new research from Savills.

The real estate firm’s new report — “Edinburgh: a global city in demand” — said that with 7,100 new office-based jobs forecast to come to the city in the next five years, a likely 3,000 new households being created annually and a booming tourist economy, expansion and infrastructure investment are required in order for Scotland’s capital to meet its full potential.

Nick Penny, head of Savills in Scotland said: “Scotland’s capital is on the brink of a grand expansion on a number of fronts: from the gentrification of the east end, which has been turbo-charged by the ambitious St James development, to the rapid residential developments that will reach well beyond the current city limits in almost every direction.

“As a result, Edinburgh needs to have a very different structure and shape of the next phase of growth which brings exciting opportunities for the city, allowing it to potentially compete with cities like New York, London and Tokyo for economic investment, tourism and new populations. But it also brings its challenges, not least how to cater for demand whilst maintaining the quality of life and dynamism of the city.”

Savills said that, in the short-term, existing and proposed development west of the bypass and the new Queensferry Crossing will strengthen these areas and provide extra housing and space for corporate occupiers.

But in the long-term, a strategic approach will be required to pick off sites along the city boundary for further development, supported by major infrastructure investment.

According to Savills, rental pressures and a shortage of appropriate space in the city centre has already seen the number of office leasing deals in Edinburgh’s out of town markets more than double from 20 to 53 between 2009 and 2016.

 

Savills said specific challenges facing Edinburgh include:

• Delivering the office space needed to continue to attract major companies and foster smaller start-ups. Savills said: “Edinburgh is home to more FTSE 100 companies than any other UK city outside London, and the city attracted £1.2 billion of commercial real estate investment during 2016. But the lack of prime Grade A office space has the potential to push rents as high as £34 per sq ft for a top floor suite in the city centre by the end of this year, meaning that more space is urgently required.
• Homes to house a growing population. Savills said: “Edinburgh’s population exceeded 500,000 for the first time in 2016 and is forecast to grow by more than 5,000 people per year, and the number of households by in excess of 3,000 per year, over the next 20 years. New homes development, while improving, is not enough to mitigate historic undersupply and significant development is required to deliver housing at affordable prices. Given the lack of supply in Edinburgh itself, almost 6,800 people moved out of Edinburgh to the immediate four surrounding local authority areas in 2016 alone, 3,000 more than the number that moved into Edinburgh from the same areas.”
• The city’s booming tourist market. “An additional 2,400 hotel rooms are set to be developed in Edinburgh by 2020, reflecting a 17.5% increase in stock, and the expansion in tourism has impacted the retail sector with a 3.15% rise in sales in the city centre. While Edinburgh airport’s five year £220m investment plan is envisaged to increase passenger numbers to 16.5m by 2021, other visitor destinations, such as Copenhagen are also investing heavily in their tourist economies, so the city must not lose focus on this important part of its economy.”

Penny concluded: “With the likelihood of a second independence referendum receding, and the potential of a softer ‘Brexit’, Edinburgh is looking like a great place to do business, live, visit and invest, but developing the appropriate commercial and residential space is key to unlocking growth.

“As a city we therefore need to think of Edinburgh as somewhere with looser boundaries and explore, within reason, where beyond the bypass is appropriate for expansion.”