SCOTLAND’S commercial property market faces a New Year hangover unless a “rapid” recovery in the economy kicks in over the next couple of months, a key report will warn this week.
The sector was particularly badly hit by the economic crisis and subsequent recession as bank lending dried up, but investment and development in offices, retail projects and industrial schemes has steadily recovered.
However, property experts believe that rebound could grind to a halt after a slowdown in Scotland’s economic growth.
Figures last month revealed that Scotland’s economy is lagging well behind the UK despite growth of 1.9 per cent in the year to June.
According to official data, Scottish gross domestic product grew by just 0.1 per cent between April and June compared with 0.7 per cent growth across the UK as a whole.
That is likely to have slowed further after it emerged last week that the UK growth rate had fallen to 0.5 per cent in the most recent third quarter. A Scottish reading for Q3 is not due for a couple of months.
In its latest Scottish property review, consultancy Ryden notes that economic growth north of the Border is “finely balanced” with another concern being the recent rise in unemployment.
The biannual report, due to be posted out to clients this week, examines every major office, retail and industrial letting and investment deal over the past six months.
It is seen as a reliable benchmark of the Scottish marketplace.
Partner Mark Robertson, the firm’s head of consulting and author of the review, said: “Economic growth in Scotland was marginal in Q2. The slowdown was unexpected as reliable surveys had suggested that reasonable economic expansion had been sustained.
“The country’s property markets clearly believe that this is only a temporary dip.
“The markets continue their cyclical upturn in occupational and development activity.
“That activity is, however, highly concentrated in prime locations, mainly Glasgow and Edinburgh. The ripple of market growth to other locations is not yet evident and some sectors, particularly those related to the oil industry and not only those in Aberdeen, continue to suffer from weak markets.
“A rapid return to normal economic performance is required in late 2015 and early 2016 to avoid any harm to this nascent property market recovery.”
The review, now in its 77th edition, also raises specific concerns over the property investment market, describing recent activity as “patchy”. Major deals over the period included the purchase of the Tanfield office complex in Edinburgh and 1, 2 & 3 Atlantic Quay in Glasgow. However, the Aberdeen market showed signs of cooling down. The report notes: “The continuing uncertainty over Scotland’s political future as we approach finalisation of the Scotland Bill and, in particular, speculation regarding a second referendum is undoubtedly having an adverse effect on the Scottish property investment market and as a result dampening transactional activity.”
However, research due out tomorrow from property consultancy Lambert Smith Hampton (LSH) will provide some upbeat signals on the investment market over the summer.
It indicates that £726 million was invested in Scotland in Q3 – an increase of 11 per cent on a year earlier. Overseas investors ploughed in £382m, according to LSH.
Key deals in Scotland included Ennismore Capital’s acquisition of the Gleneagles resort for £150m.