'No silver bullet' for property investment market despite second-quarter bounce

Investment into Scottish commercial property topped £320 million in the second quarter driven by hotels and offices, but the total remains about a third below expected levels, new figures reveal.

The largest hotel deal in the latest quarter was the £85m sale of Edinburgh’s iconic Caledonian Waldorf Astoria, better known as The Caley Hotel, to property fund manager Henderson Park, according to the Colliers report.

The total for the period is up from the £250m recorded in the first quarter of 2023 and 35 per cent below the five-year quarterly average of £490m, according to property firm Colliers’ latest Scotland Snapshot. With 30 deals completed in the second quarter, the average lot size stood at £10.7m, up from £8.6m in Q1 and only slightly below the five-year average of £11m. The report also notes that the investment total for the first half of the year was £570m, 66 per cent down on the comparable period in 2022.

Oliver Kolodseike, director in the research and economics team at Colliers, said: “As with all markets across the UK, Scotland is no stranger to the limiting impact that high interest rates, cost of living and the cost of construction is having on the market. While there’s no silver bullet that can help, it would seem we are reaching a peak in interest rates and as such some pressures should ease as we head towards next year.”

Hotels accounted for 35 per cent of all investment activity by value in Q2 to reach £110m, up from just £10m transacted in Q1. The largest deal in the latest quarter was the £85m sale of Edinburgh’s iconic Caledonian Waldorf Astoria, better known as The Caley Hotel, to property fund manager Henderson Park. Offices, meanwhile, accounted for a 28 per cent share of investment activity, with values reaching £90m in the second quarter, up from £40m in Q1. Nine assets changed hands, up from the six in the previous quarter, but down on the five-year quarterly average of 12.

Elliot Cassels, director in the national capital markets team at Colliers Scotland, added: “Whilst the vast majority of investor appetite is for ‘beds and sheds’ there is still appetite for all sectors - but at adjusted prices to reflect the market. The gap between vendor aspirations and buyer expectations has caused transactional volumes to plummet.”

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