The latest sector review by property advisory firm Lismore Real Estate found that the £175 million of transactions completed in the first quarter of the year was some 70 per cent lower than the five-year average for Scotland in what it described as a subdued start to 2021.

However a stronger property investment market is being forecast for the next three months with more sites being either prepped for sale or quietly marketed.

Chris Thornton, an associate at Lismore, said that despite speculation over the future of office working, demand is expected to remain strong.

Although the retail sector has been hard hit by the pandemic, developments such as Edinburgh's St James Quarter highlight there are still opportunities for investors.

“Any talk of the demise of offices is hugely over-stated, with the majority of workers keen to reconnect with colleagues, with some form of blending working likely to be the norm as restrictions begin to ease,” he argued.

Thornton said with staff well-being now firmly at the top of the agenda, buildings that offer - or can be adapted to offer - features to meet occupier demands in the new working environment will succeed and thrive.

“Those that can’t will come under serious pressure from occupiers and see a softening in values,” he warned.

The review found that the pandemic has had a mixed impact across different property sub-sectors, with the logistics and industrial sector continuing to see buoyant activity, with the £14.3m acquisition of the Titan building at Eurocentral by Lothian Pension Fund being the standout deal of the quarter.

“Demand continues to outstrip supply and we are beginning to witness speculative logistics development across the central belt. With such strong market dynamics, those currently on-site with speculative developments are likely to be the early winners,” said the review.

Lismore said the pandemic has accelerated many fundamental changes in the retail sector that had been ongoing for the last five years. It said shopping centre owners who are keen to sell schemes with limited alternative use options are now having to accept huge value reductions with recent examples in Scotland showing anywhere between 50-75 per cent.

“From ‘value destruction’ and ‘re-purposing’ in the shopping centre and high street sectors, compared with ‘resilience’ and ‘opportunity’ being the buzz words in the foodstore, convenience and best located retail warehousing sectors, structural change is happening for sure – but not total decimation,” it stressed.

However, Lismore said the beginning of restrictions easing and the successful vaccine roll-out is starting to offer light at the end of what has been “a very long tunnel”.

“We are now seeing some lending and new players who do not have legacy issues entering the retail warehousing market. This is primarily focused on urban parks and food-led schemes. Terms remain conservative but it is an acknowledgment that certain physical retail is not dead and still has a future.”

Overseas investor activity has been temporarily curtailed due to travel restrictions, but Lismore said the “weight of capital remains and it is likely to return by the half year”.

But private equity investors are becoming frustrated as the volume of forced selling remains limited and the report said that means speculative funding of logistics facilities in Scotland “cannot be far away”.

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Death of the office 'hugely over-stated' says Scottish property expert

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