Property pros predict a tough year ahead

Published on Monday 4 January 2010 18:05

CANVASSING some of the leading lights of the Scottish commercial property sector for their thoughts on what 2010 will bring is not a cheerful exercise.

There's not a lot of gung-ho around. More of the same is forecast and the "same" was not very good, although there are some glimmers of hope around.

Sinclair Browne partner Knight Frank says: "Prospects for 2010 are likely to be much the same as 2009. There will be continued pressure from banks as it is unlikely that they will release the purse strings to lend on any form of speculative development. This will restrict the amount of new supply coming through.

"Occupiers will continue to take advantage of weaker market conditions to renegotiate existing terms or capitalise on incentive packages offered by landlords seeking to attract new occupiers."

Alasdair Humphery, managing director, Scotland, Jones Lang LaSalle, sees 2010 as a year of challenges, with the product famine to continue and he says that clearly the depth of equity capital demand exceeds supply of stock.

He adds: "My view is that the capital won't evaporate next year and that, although pricing has risen rapidly over the last six months (albeit from a very low trough], we are still below long run average price trend lines.

"When bond rates rise, and there is a prospect of this in 2010, we may see some easing of real estate pricing generally but for now, and against other asset classes, we don't seem out of kilter."

Doug Smith, chairman of CB Richard Ellis (Scotland), does not expect a quick fix. "Steady improvements in our markets to arrest and reverse the declines witnessed since mid 2007 will offer a more sustainable platform.

"Where will recovery lead to? A normal market is not what we saw in the period leading up to the peak in 2007. That peak in itself was abnormal. A normal market is one where we should see stabilised values, higher transaction volumes, recovery in occupier demand, improved investment liquidity and a wider return of lenders to the market offering terms which support rather than frustrate activity.

"It will not be a straight line, this route to recovery, and provided too much credence is not placed on it, improvement in final quarter this year might just be enough to carry some positive momentum into 2010."

Chris Macfarlane, partner in charge of King Sturge Scotland, believes that the current investment bubble will continue at least for the first six months as the retail funds continue to try and get money into the market with pricing likely to find a more sustainable level through the year.

He goes on: "We anticipate that the occupational markets will continue to be difficult, although retail is likely to improve over the course of the year. More stock will appear from the banks, as they attempt to lower their exposure to commercial property, but this is unlikely to be a deluge. Finally, new Scottish-based vehicles will reappear to replace the old guard of Kenmore etc."

Finally, a positive note from Alasdair Ramsay, partner in charge of Drivers Jonas in Scotland: "We don't have the oversupply of new developments which we had in the last recession. This influences the return of that rare breed, the property developer in 2010, albeit on a select basis.

"In particular, with recent occupier activity in Glasgow, this adds a degree of comfort to the prime end of the market, as supply is gradually taken up. Quite impressive, given that we are in one of the most severe economic downturns that we have experienced."

Deals of the year – as chosen by agents

TRAVELODGE Hotel, Waterloo Place, Edinburgh – this September deal was one of the most entrepreneurial of the year, with Beaghmor Property buying the property as an office with short-term tenancies; securing planning consent for a change of use to hotel; agreeing a 35-year deal with Travelodge to pre-let the property; and then forward funding and pre-selling to Consortium Investment Management for 10.2 million. Construction is under way with completion anticipated in April 2010 – Jones Lang LaSalle.

OUR most significant deal of 2009 was the largest letting of a speculatively developed office building in Glasgow in over 30 years. Acting for IVG Development (UK) and Ediston Properties we let the 11,737sq m Broadway One building to Tesco Personal Finance within three months of its practical completion and we are now acting in the investment sale – Ryden.

THE acquisition by Arab Investments of Coffee Republic from administrators KPMG during the summer was the largest ever coffee deal to be concluded in the UK. It was a Scottish team leading a national deal – put together by our Fiona Hamilton who has been retained as adviser by Coffee Republic. In the deal she provided operational and strategic acquisition advice and will continue to advise Arab Investments on strategy moving forward – King Sturge.

LETTING Hermiston Quay and Vantage Point to the Scottish National Trust and Edinburgh Leisure. While Grade A transactions have completed in the city centre, these two deals resulted in the occupation of buildings which were vacant and on the market for a long time with only one letting concluded at Hermiston Quay to Adobe since completion. The development now boasts good quality tenants and the transactions have boosted the office market in west Edinburgh – Knight Frank.

THE deal of the year is one that shows well researched and executed deals can still make money. Bought for 1.85 million by Kilmartin in mid-2007 (some may say the peak of the market), following lease re-gear and the rental growth anticipated at the time of purchase, this small terrace of industrial units in Altens, Aberdeen, has just been sold to CBREI for 2.05 million, showing that despite average falls of more than 40 per cent in value across the market good deals still have potential – CB Richard Ellis (Scotland)

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