THE news that The Edge, a superb 14,500 sq ft contemporary Grade A office building in York, has now been completed and is attracting serious interest from potential occupiers is a shot in the arm for the city's commercial property market.

Against an alarming backdrop of a looming downturn in the economy and the dreaded credit crunch, there are fears that speculative developments will either be put on hold or cancelled altogether.

The latest commercial property survey by the Royal Institution of Chartered Surveyors (RICS) suggests that even in the final quarter of last year, tenant demand had fallen to 2003 levels - all adding to the daunting mix for speculative builders.

Yet there has been reassuring interest in The Edge, in Hospital Fields Road in the Fulford area of the city, although it has to be conceded that the project was both conceived and mainly executed before the problems in the property market took hold.

Richard Squire, project director of Shepherd Developments, said: "The fact that we built it speculatively is a massive vote of confidence in the York market. There is currently a shortage of Grade A office space in the city and we are confident that The Edge fulfils a need. We are happy to sell or lease the building and will be looking at rents around £16 per sq ft."

There are problems in York, however, according to Alex Munro, head of commercial development agency with property consultancy Knight Frank in Yorkshire.

He says: "There is certainly pent-up demand for new office accommodation in the city centre, but if that demand is to be satisfied, developers have to tackle the issue of commercial viability.

"No one is keen to build new speculative developments in the city centre because build costs are the same as Leeds - £165 per sq ft - but the top rent is only £16 per sq ft and it doesn't take a genius to see that can't work. There needs to be another £2.50 to £3 per sq ft to make it viable and that's a big call".

As a consequence, construction of purpose-built Grade A office accommodation has occurred predominantly on the fringes of the city and in out-of-town locations. This has been compounded by the restraints of site availability and the historic nature of York city centre.

In the past, where speculative development has taken place, agents have encouraged clients to develop speculatively on schemes where the unit sizes range between 3,500 sq ft and 10,000 sq ft, which are capable of subdivision.

One new scheme which will be an interesting test of the market is Hungate, which is a joint venture by Crosby Lend Lease, Evans Property Group and Land Securities.

The much-vaunted development, on the banks of the River Foss on the edge of the city centre, is being marketed by Knight Frank. Apart from houses and apartments, there will also be offices, community space, café/restaurants, neighbourhood shops, live/work spaces and leisure facilities. Takeup of the offices will be closely monitored.

According to Miles Lawrence of York agents Lawrence, Hannah and Skelton, rents have now reached £16 per sq ft for fully specified air-conditioned office accommodation.

He says: "Inevitably the erosion of York's traditional manufacturing base during the past two decades has meant the historic city has had to innovate to survive.

So one of the most encouraging signs for its future commercial prosperity is the remarkable growth of the city as a business and science city centre. It is rapidly becoming the Cambridge of the north."

It is likely, however, that new science-based and hi-tech companies will be looking at purpose-built accommodation on the outskirts of the city, where there is space to develop - notably at Oakgate's Vangarde business park.

Ultimately, therefore, there is still demand for office accommodation in York, but given the economic climate and the constrained nature of the city centre, it is likely that if there is to be speculative development, it will take place outside York's historic core.