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Prices and rents in two key Scottish cities set to outperform rest of UK

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2017-02-09

The two major Scottish cities of Glasgow and Edinburgh are set to see property prices and rental growth outperform rest of UK over the next five years, according to new research.

Property consultancy JLL forecasts that house prices in Edinburgh are set to grow 23.4% compared to a UK average of 13.1% while Glasgow will also outperform the national average with growth of 15.4%.

Rental growth in Edinburgh is forecast to increase 20.5% and in Glasgow a rise of 18.2%, with both cities outperforming the UK average of 17.6% with both sectors seeing demand exceed supply.

Continued political and economic uncertainty surrounding Brexit and a possible second referendum will ensure that house builders maintain a positive but cautious approach, says the forecast report.

It means there is likely to be continued pressure on price and rental growth between 2017 and 2021, especially in key city centres but demand for city centre living and renting is expected to continue.

Indeed, the research points out that during the past couple of economic downturns it has been city centre residential markets which have proved most vulnerable due to a reliance on the buy to let sector and the unproven nature of renters. Looking forward, JLL expects residential property performance will be stronger in city centres than in traditional housing.

This change has also led to the emergence of the Private Rented Community (PRC) institutional investment model, and JLL expects to see a number of specialist PRC developments in Edinburgh and Glasgow over the next few years.

Despite taking a broadly optimistic outlook for the Scottish housing market, JLL specifically calls out the LBTT property tax as a ‘housing market thorn’ and one which is impacting transaction volumes higher up the value curve.

The report also forecasts that there will be 11.4 million private housing completions over the next five years and the number of households in Scotland is set to increase by 61,000 over the next five years.

‘The challenging perception of city centre living in recent years is likely to mean that Edinburgh and Glasgow will lead the Scottish residential market during the uncertainties of the next few years, despite these being perhaps most vulnerable to unfavourable Brexit effects,’ said Neil Chegwidden of JLL residential research.

‘House builders are more pro-development now than they have been for some time. Encouragingly we are now seeing the re-emergence of smaller and mid-sized house builders, They are providing stiff competition to the larger and more established Scottish house builders who have kept their toes in the market despite tougher market conditions in recent years,’ he explained.

‘This is forcing up land values in key locations and creating a more diverse base of developers but the battle and scarcity for prime city centre sites is also generating opportunities and desire to develop in peripheral locations,’ he pointed out.

‘All of this is positive for the Scottish residential market moving forward. Let us hope that the political and economic landscape does not undermine the drive towards a more normal and sustainable housing market,’ he added.

According to Jason Hogg, director of JLL’s residential team in Scotland, the industry is in a confident and optimistic mood, buoyed by strong demand for residential in key city centres.

‘However, there’s no doubting that the key challenge for the year ahead is to address the shortage of supply. It’s not simply a case of house builders increasing their outputs. We need to create a better planning environment at both a local and national level which facilitates this aim, increasing the supply of land and helping rather than hindering the residential development planning process,’ he added.