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PROPERTYdrum Pulse: Edinburgh property market survey

publication date: Oct 29, 2009
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Edinburgh is a city of world renown where history and culture meet a fashionable and thriving atmosphere. Dating back to the Iron Age, the city sprung up around Edinburgh Castle and expanded to encompass 50 outlying towns and villages, such as Stockbridge, Leith, Morningside, Murrayfield and West End. Edinburgh has been Scotland’s capital since the 15th century. The first Scottish Parliament since the Act of Union in 1707 convened here on 12 May 1999 and the new Scottish Parliament building followed in 2004, having cost a colossal £430m. Today the city is one of Europe’s major financial centres and Scotland’s top tourist destination.

Edinburgh propertyEDINBURGH PROPERTY MARKET OVERVIEW

SUMMARY OF PROPERTIES FOR SALE IN EDINBURGH
Total properties for sale: 3,314
Properties for sale in Edinburgh listed in the last 14 days: 465
Average price of properties for sale in Edinburgh: £254,246
Median price: £180,000
Average Time on Market (ToM): 121 days

THE ‘TOWNS’ OF EDINBURGH
The City of Edinburgh is split into two Towns, the New and the Old. The Old Town, dominated by a medieval fortress, Edinburgh Castle and the neo-classical New Town, whose development from the 18th Century had a far-reaching influence on European urban planning and the contrasting historic areas give the city its unique character. The Old Town has preserved its medieval plan and many Reformation era buildings. One end is closed by the castle and the main artery, the Royal Mile, leads away from it; minor streets (called closes or wynds) lead downhill on either side of the main spine to The Palace of Holy Roodhouse, home to Mary Queen of Scots.

The New Town was an 18th Century solution to the problem of an increasingly crowded Old Town. The city had remained incredibly compact, confined to the ridge running down from the castle. In 1766 a competition to design the New Town was won by James Craig, a 22-year-old architect. The plan that was built created a rigid, ordered grid, which fitted well with enlightenment ideas of rationality. The principal street was to be George Street, following the natural ridge to the north of the Old Town. Either side are the other main streets of Princes Street and Queen Street which link to a series of perpendicular streets. At the east and west ends are St. Andrew’s Square and Charlotte Square, the latter designed by Robert Adam. Bute House, the official residence of the First Minister of Scotland, is on the north side of Charlotte Square.

The New Town was so successful that it was extended. The grid pattern was not maintained, but a more picturesque layout was created. Today the New Town is considered one of the finest examples of Georgian architecture and urban planning in the world, combining elegant architecture with spacious and comfortable housing located near pleasant communal gardens and attractive views. The original character of the Georgian era New Town, with its cobbled roads, pillars, and sandstone block facades is preserved today thanks to building codes that even stipulate wrought iron railings are painted black.

Edinburgh2LIFESTYLE AND CULTURE
Since 2001, Edinburgh has consistently been voted ‘Favourite UK City’ by Observer, Conde Naste and Guardian readers. In 2007 Edinburgh was voted the best place to live in the UK by Channel 4’s Location, Location, Location and in 2008 was named one of the world’s top ten cities by travel magazine Wanderlust. The quality of life in the city region is endorsed by its residents who registered a 92 per cent satisfaction rate, the highest of any city surveyed in a 2006 MORI poll. Edinburgh became a Unesco World Heritage Site designation in 1995 and attained self-government five years later. Property prices soared in the run-up to devolution and a sellers’ market persists.

Commerce has also shifted. Twenty years ago, offices were mostly in townhouses around Charlotte Square. Now, custom-built prestigious high-tech offices are all over the city. Houses and flats for sale are still relatively lacking, so competition is fierce for anything that comes onto the market. The legal process for buying a house in Scotland is different from the rest of the UK. In Scotland the vendor sets an ‘offers over’ price, which is the lowest they are prepared to accept. Once accepted, the offer is binding, although the seller is not obliged to accept any offer, even the highest bid.

Edinburgh has seen the largest population increase of all the Scottish Council areas in recent years. In Mid-2008 Population Estimates, Scotland, the General Register Office for Scotland estimates that Edinburgh’s population on 30 June 2008, was 471,650 with an increase of 3,580 (0.8 per cent) on the previous year, and of 25,410 (just under six per cent) between 1998 and 2008. Excluding London, Edinburgh has the strongest economy of any city in the UK and thrives on the industries of banking, education and tourism.

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DIVERSE AND QUALITY PROPERTY
 Edinburgh has a thriving and dynamic property market; significant increases in the housing stock, including affordable housing, ensure that Edinburgh continues to be an inviting prospect for potential residents and investors. The number of houses in Edinburgh is expected to increase by 12 per cent by 2014. Urban villages, Georgian crescents, market towns and sympathetic new developments offer abundant choice to prospective residents; from the tenements of the medieval Royal Mile to the Georgian elegance of the New Town, the fine Victorian Suburbs to the designer penthouses of contemporary Leith and on to the family homes of rural East Lothian.

Apartment living dominates Edinburgh’s property market, although the city’s wealthier southern and western districts include detached and semi-detached houses. Home to the University of Edinburgh, South Side is popular with many of the 100,000 students and has an abundance of rental properties. Comprising Bruntsfield, Haymarket, Marchmont, Merchiston, Morningside, Newington, Polwarth, Saint Leonards, Sciennes and The Grange, South Side is also popular with families due to its state and private schools.

Firms of ‘solicitor estate agents’ handle residential and commercial sales and lettings in Edinburgh rather than a typical estate/letting agency format found in the rest of the UK. 230 ‘property solicitor set ups’ come under the marketing umbrella of The Edinburgh’s Solicitors’ Property Centre (ESPC), founded in 1971 – handling 9,600 residential sales worth more than £1.95bn in 2008.

Within the ESPC is a smaller group of five of Edinburgh’s leading property solicitors who handle more than a quarter of all house sales registered by the ESPC. The Edinburgh and Lothians Property Group (ELPG) consists of Warners, Neilsons, Drummond Miller, Leslie Deans & Company and The Lints Partnership and was set up in 2002 with the aim of strengthening the members’ position as the main players in the Edinburgh and Lothians’ property scene. The members all feature within the top five per cent in the ESPC’s top performing property solicitors in terms of Edinburgh property sales and sold a total of 1524 properties in 2008 – accounting for more than one in four sales made in the ESPC.

Edinburgh1SMARTEST STREETS
The New Town is regarded as the most desirable district, with its Georgian squares and crescents. Murrayfield and Morningside are also quite affluent as is The Shore, in Leith, the city’s revamped Docklands area. A city-centre studio in a traditional red sandstone listed 17th Century mansion seeks offers over £65,000 with Anderson Strathern. A three bedroom flat over three floors is seeking offers over £285,000; a variety of two and three bedroom apartments in a period development at Trinity Gardens, £285,000; a garden two bedroom flat in centre, £300,000 – all marketed by the firm Rettie & Co.

A Georgian sandstone terraced villa in Claremont Park seeking offers over £620,000 with Savills. Knight Frank has period apartments from about £200,000 up to detached period houses for £2m. Properties in the Costorphine and Murrayfield areas attracted an average of 608 bids per property between January and February 2009 – making it the area with the highest average number of bids in Edinburgh. The areas which recorded the lowest number of bids still attracted 81 bids per property.

Note: ‘current house prices’ of Edinburgh properties quoted in this feature represent the actual asking prices for homes for sale calculated daily from the properties in the www.home.co.uk property search.

Table 1


NEW DEVELOPMENTS
Printworks has 59 flats in the former Waddies the Printers building in Slateford Road from £221,000, with Knight Frank. The local developer Betts has built 49 two bedroom flats in Duddingston, four miles from the city centre, from £118,000. Bellway is constructing 75 flats and penthouses in the Haymarket area, from £150,000, and Bryant has developments in Fairmilehead, Leith, Hopetoun Village and Broughton.

Edinburgh propertyWaterside developments in Granton, Western Harbour and Leith Docks are forecast to add 15 per cent to the city’s current housing stock, providing 32,300 new homes by 2025. Maritime Bonds on Water Street in Leith will be 44 new homes by FairMuir Ltd marketed by Knight Frank. The Edinburgh Waterfront is an enormous 364 acre project, exploiting the water views of ‘Firth on Forth’. Codenamed ‘The Granton Waterfront Project’ it is the regeneration of brownfield and the contaminated land at the Granton Waterfront in the North of Edinburgh. It lies 3km from Edinburgh city centre and has some of the best views in the area. Plans include 5,300 residential units, 638,010 sq ft of commercial space (mainly offices), 261,452 sq ft of retail space, 248,224 sq ft for hotels, 69,691 sq ft of leisure space, 85,987 sq ft of cultural space and new schools.

RESIDENTIAL
For 37 years, there had never been an annual fall in prices; not even during the oil prices shocks of the 1970s or the property crash of the late 1980s and early 1990s. The Edinburgh market has traditionally been resilient due to its large stock of period properties, a rising population and a limited number of new homes. However, the credit crunch and lack of confidence in the property market wiped 15 per cent off the average value of a home last year with a significant decrease in the number of transactions, according to the Edinburgh Solicitors Property Centre (ESPC).

Even up until October 2008 estate agents in the Scottish capital felt that Edinburgh was still one of the safest places to invest – house prices in Scotland were still in positive territory in June 2008. Figures from the Register of Scotland showed that prices rose from £155,705 in the second quarter of 2008, to £160,155 in the third. The Scots’ thriftiness and their reluctance to borrow money would exempt their housing market from the downturn – or so they thought! In fact, Scotland simply had a delayed reaction. Prices in Edinburgh plunged 11 per cent in October 2008 with a 57.5 per cent fall in sales, according to the ESPC. The Magazine for the Law Society in Scotland reported solicitors and estate agents were laying off between 10 per cent and twenty per cent of staff.

The Registers of Scotland, the government agency that records all property transactions, reported in March that the area saw a fall in sales to just over £382 million in the last three months of 2008 – a decrease of 57.3 per cent over the same quarter in 2007 and a decrease of 35.6 per cent over the previous quarter (July-Sept 2008). The report also showed that the average house price in Edinburgh for the period October to December 2008 fell 5.8 per cent to £201,021 compared to the same period a year earlier when it stood at £213,386. Prices in the final quarter of 2008 were down 11 per cent on the previous quarter when the average residential house price was £225,847.

Table 2

UPBEAT PROPERTY AGENTS
However, estate agents at the end of last year claimed that Scotland would lead the UK house price recovery. Savills forecasted that prices in Scotland would rise two per cent in 2010, compared to one per cent across the UK. “The average house price in Scotland is significantly lower than in England, so property is already more attainable,” says Faisal Choudhry from Savills’ research department. The average Edinburgh house price has fallen by 6.8 per cent annually in the first three months of 2009, according to statistics released at the beginning of April by the ESPC. In the East Central Scotland region the fall was 7.2 per cent. The average price of a home in Edinburgh is now £195,895. For the month of March alone, the average house price was £194,683, a year-on-year decrease of 12.6 per cent. For the region, the average selling price is now £180,545. By comparison, the Halifax House Price Index saw the average UK house price fall annually by 17.5 per cent to £157,326 in the first three months of 2009, while Nationwide recorded a fall of 16.5 per cent to £149,709.

The ESPC also reported sales volumes down by almost half from 1606 to 818, but Edinburgh’s property market may be finding its feet again. Nationwide’s figures say prices were up almost one per cent in March; the average is now £150,946. The 0.9 per cent increase was described as a ‘surprise bounce’ and the group warned against drawing early conclusions that the market has changed across the country.

Some local agents however have seen recent sales figures doubling those of January and February. Warners report that it carried out 29 private property sales in March, together worth more than £5 million – including, for the first time in 2009, two ccameroonsecutive weeks when property sales hit double figures – and that property sales in the Lothians are showing signs of recovery.

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ESPC has backed up the view that selling prices in Edinburgh were holding steady. ESPC chief executive Ron Smith still sees reason to be positive, “Even though the volume of sales is still down, there is some leveling off in the last three months and we are starting to see signs of more stability in property prices,” he says. Monthly and quarterly figures continue to show year-onyear falls in house prices, but Ron Smith remains guardedly optimistic about the direction of the market. “It’s important to note that the average house price has remained stable over the last six months,” said Mr Smith. “In Edinburgh, this has seen the average figure sit somewhere between £192,000 and £200,000. Buyers are continuing to benefit from their stronger position as only one in five properties is achieving its fixed price.”

Property group ELPG has also put out an upbeat statement reporting more than 40 property sales through its Spring Sales initiative, with a total value worth in excess of £6.5 million. Under the initiative, launched earlier this year, prospective buyers can compare reduced house values with the previous prices set for the properties last year. ELPG report that some individual firms have carried out 13 property sales each in just one week. More sellers are also choosing to market their home at an ‘offers around’ price, rather than ‘offers overs’ or ‘fixed price’, which is helping to attract buyers.

Angus Macpherson, partner at ELPG member firm Drummond Miller says, “The fact that we are seeing weekly sales in double figures at some ELPG firms is a clear sign that there is still high demand for property in Edinburgh and the Lothians, and that the market has not ground to a halt.” Julia Scott, Director of RE/MAX Property Services adds, “The majority of vendors have now lowered their expectations in line with the falling prices – as a result of constant media reports surrounding the current economic climate and advice from us. With the introduction of Home Reports, the buyer now has access to a survey detailing the value of the property, so there is less debate about how much a property is worth.”

One of Scotland’s leading property consultants predicts a recovery of house prices by the end of the year after reporting a surge of interest from buyers in the last few months. Rettie & Co, said the fall in house prices appeared to be bottoming out. It reported a 68 per cent increase in new buyers registering and a rise of 62 per cent in the number of viewings.

RENTAL
Edinburgh’s property market has always appealed to investors; with a high student population and strong financial sector there has always been a good demand for let property. Across the UK the rise in the number of unsold properties hitting the rental market has pushed rents down by as much as 25 per cent. Average rents dropped to £795 a month in February, contrast with £950 in May last year, equalling an average fall of 16.3 per cent. However, in Edinburgh there has been an increase in the demand for rented properties – up by 25 per cent – and rents have remained steady although some agents have seen decreases.

Grant LidsterGrant Lidster, Business Owner of Belvoir Edinburgh South, believes that the lettings market in the current economic climate will continue to increase from a volume perspective. “However,” he says, “in many areas rental income will remain slightly depressed due to high levels of rental stock versus tenant demand.” The largest sectors of the market, one and two bedroom flats, saw the biggest falls with rents for larger properties generally holding steady. One bedroom flats falling between 0.5 per cent to the above average and two bedroom flats falling 0.75 per cent – although the aggregated declines are modest, some areas have seen larger falls.

However, other letting agents report that some Edinburgh landlords are seeing rental prices increasing as people avoided buying properties and that the weak pound had lured ex-pats back to Scotland. Citylets in Edinburgh reported rents for two bedroom properties in the capital increasing by 4.7 per cent and rents for one bed properties increased by three per cent over 2008. RE/MAX Property Services reports an increase in supply over the last six months. Gary Clark, Director of RE/MAX Property Services: “The decline in the sales market has had an impact on the rental market as home owners who wish to wait for improved conditions opt to let in the short term, resulting in an increase of available properties and therefore greater choice and more competition in the rental market. Tenants can now be much more particular about their accommodation requirements.”

Lidster also believes that the increase in supply over the last few quarters has given tenants greater choice and allowed them to be more particular: “The greater choice of rental property available to tenants has had a dramatic effect on time-to-let averages which have lengthened considerably and rents have declined faster than might have been expected. The current average time-to-let has increased to around 48 days, some 12 days longer than in Q1 2008. 38 per cent of all properties let within a month down from 52 per cent the previous year.” Letting agents tend to manage every type of property – cottages, detached and terraced houses, apartments and flats, both new and traditional build, and report that the average rents over the past six months for Edinburgh are: one bedroom £515; two bedroom £650; three bedroom £795 - £950; four bedroom £1,200.

Some agents found it difficult to comment on the quality of rental accommodation in Edinburgh as a whole as in general this would vary from landlord to landlord and between property management firms. However many felt that tougher legislation along with more regulated industry policing is ensuring that most decent agents/landlords meet the required high standards being laid down. Overall Edinburgh seems to have very good quality accommodation, but as in most cities, there will always be a small proportion of unscrupulous landlords.

EdinburghINVESTMENT
Those with cash to invest are finding property to be a good choice since savings, fixed bonds etc currently provide a small return on investment. Although at the moment, according to Grant Lidster of Belvoir, the ‘normal’ run of the mill buy-tolet landlord has quite simply been squeezed out and the ‘corporate investors’ are also few and far between, foreign investors looking to buy property in Edinburgh are giving the property market in the city its first signs of recovery The ELPG group has said that, as house prices are close to bottoming out and interest rates are so low, buyers from abroad are taking advantage of the exchange rate to buy bargains in Edinburgh.

Leslie Deans, senior partner at Leslie Deans & Co, said: “I have already been approached by a couple of foreign investors who are taking a great interest in properties in Edinburgh and the surrounding areas. Because the pound is performing relatively poorly compared to the Euro, there are a number of cash rich investors who are currently looking to take advantage of the exchange rate and are looking at the UK - and Scotland in particular – as the ideal place to invest their money.” RE/MAX have recently sold a new build two bedroom flat in Portland Gardens near Ocean Terminal for the full asking price of £205,000 to an international buyer for cash.

Cameron StottCOMMERCIAL
Edinburgh traditionally has a reputation for being one of Europe’s main financial and business centres, with excellent transport links to Europe and the rest of the UK and it is this that has ensured a steady commercial property market. However, the city has recently suffered from the tightening economic climate and demand has dropped significantly over the last six months with supply increasing due to speculative developments completing and occupiers downsizing. With many companies focusing on occupational costs, the majority of commercial transactions are likely to seek affordable good quality stock which is rare in central Edinburgh. Jones Lang LaSalle report that there is a downward pressure on rental levels particularly second hand spaces and accommodation on peripheral locations. Says Director Cameron Stott, “Flexible incentive packages being offered to occupiers has increased significantly especially if the occupier is a sound covenant and prepared to take a medium to long term lease.”

Rent-free, stepped rent, capital contributions, lease flexibility are some of the incentives being offered by commercial landlords. “In our experience a mixture of rent free and capital contribution incentives are working the best,” says Cameron Stott. Jones Lang LaSalle believes it will take 12-24 months before the commercial property market sees a meaningful recovery. However the lack of new supply over the next two years within the city centre may help the speed of recovery in the office market.

The company has given a few examples of recent transactions in the city. Tesco Personal Finance has acquired a 47,787 sq ft office development at Haymarket on a 15 year lease; prime office rents in central Edinburgh are stable at £307 sq m. A rare opportunity for refurbished office accommodation has recently come about in the centre of Edinburgh. Acting on behalf of Mapeley Estates Ltd, Knight Frank and Atisreal have recently been appointed as joint letting agents to market Clarendon House, in George Street, 35,000 sq ft offices of high quality accommodation in Edinburgh’s Georgian New Town. “There hasn’t been a building of this size and quality available on George Street for years,” says Douglas Gardiner, director of Atisreal. There are four large city centre office developments due to complete during 2009 – Exchange Place on Semple Street, Westport House, Leith Street and Quartermile 6.

AUCTIONS
Property auction success rates have dropped with prices dipping and buyers being more cautious, but like all property transactions at the moment, if the property is marketed with a realistic guide price and reserve, there are still willing buyers eager to raise their hands. Auctioneers believe that investors are beginning to turn their attention back to the property market and there are encouraging signs of improved confidence with yields beginning to firm although lack of liquidity generally is holding back recovery.

Shaun Vigers, Director/ Auctioneer of SVA Property Auctions in Edinburgh says that they have not really seen an increase in the numbers of properties put up for auction this year; rather the company attempting to restrict the acceptance of too many lots where vendor expectations significantly exceed reality. Nor have they seen an increase interest in buyers. He believes this to be because purchasers are delaying to see whether better deals appear in the future. “Cash buyers are being canny/choosey/ pragmatic, depending on your point of view. Why rush to buy now when better opportunities may appear in the next 12 months?” he points out.

Table 3

When asked if prices were up or down on last year, Shaun Vigers felt that the picture was unclear. “What is selling is selling very well. What is not selling never really gets started. We are not missing a target/reserve by the odd thousand and have had lots sell at a significantly higher price than expected recently. There is no market for the ‘unloved’ lots – full stop.” Mr Vigers continues, “Properties offered have mainly been commercial property with about 60 per cent to 70 per cent reaching or exceeding their reserve. We normally sell between 60 per cent and 70 per cent on auction days and between five per cent and 10 per cent of unsold lots get sold soon after auction.”

SVA Property Auctions report that they are seeing minimal repossessed properties at the moment. Mr Vigers explains: “Scotland is not yet seeing the flood of repossessed properties which the media seems to be predicting.” SVA Property Auctions anticipate growth in the auction market over the next couple of years for both the best and worst reasons. Shaun Vigers comments: “Auction as a way of selling is becoming ever more popular; we anticipate more sellers and buyers realising the advantages of selling at auction over the traditional private treaty method.