'Depressed' commercial property deals now worse than bottom of recession

Published on Wednesday 3 August 2011 17:27

COMMERCIAL property transactions in Scotland hit their lowest point in the second quarter of the year - worse than during the bottom of the recession, new figures show.

But experts expect that long-awaited distress sales will pick up this year, luring foreign investors north from London to Scotland as the banks face continued pressure to reduce their holdings of toxic commercial property debt.

The Scottish Property Federation (SPF) said the dearth of deals in the second quarter was a sign of Scotland's "flatlining" economy.

Just 489 million worth of commercial property deals were transacted from April to June this year against an average of over 600m per quarter throughout the recession. This has resulted in the contribution such transactions make to the Scottish economy and tax revenues being reduced by two thirds, the group has estimated.

David Melhuish, director of the Scottish Property Federation, said: "The story is one of continued depressed commercial property sales across Scotland, reflecting a flatlining economy. The industry is producing perhaps a third of its former contribution to the economy and tax revenues."

Although transactions have slowed to a trickle in the first half of the year, there have been some including Pruprim's sale of the Wellgate Shopping Centre in Dundee for 31.2m to clients of Invista Real Estate Investment Management.

The most significant transactions overall in Scotland were the acquisition of IQ in Aberdeen for 50m by London-based Aerium Finance and the 52.7m sale of the Rolls-Royce facility at Inchinnan to Gatehouse, the London-based Islamic bank.

Bill Binnie, head of capital markets at Lambert Smith Hampton in Scotland, said it was "only a matter of time" before "distressed stock is placed on the Scottish market, presenting attractive opportunities for investors before the end of the year".

He added: "Over the last quarter, almost 15 per cent of transactions in the UK involved properties being sold by administrators. Whilst banks have been reducing their exposure consistently through consensual sales, and we see this continuing, this recent significant increase in forced sales reflects the banks' drive to reduce the level of debt held against commercial property."

The figures, based on data collected by the Registers of Scotland, show Glasgow had the highest value of commercial property deals in the quarter worth 115.2m while Edinburgh has 90.2m worth of transactions.