Commercial property: Reasons to be cheerful after recent advances

The Kirkhouse Inn in Stirlingshire is currently for sale.
The Kirkhouse Inn in Stirlingshire is currently for sale.

Jonathan McManus takes stock of a generally upbeat market

The commercial property market in Scotland has picked up recently and, while it would be over-egging the pudding to say it is buoyant, it is generally upbeat.

Some areas remain sticky, however.

The retail market has not lacked bad news – especially in the regions where high streets have suffered nationally as shopping habits change.

However, the secondary retail market is becoming more reasonably balanced, with landlords reassessing where their expectations need to be if they want to let or sell their properties.

Rateable values (RV) and changes in local taxation have, despite apocalyptic headlines, actually helped in many cases.

The obvious beneficiaries are smaller shops with RV of less than £15,000 which can end up paying no rates at all.

Across the regions, there has been healthy activity in buying, selling and letting of shop units. Particularly attractive are retail outlets with tenants which the landlord is waiting to sell.

Buyers, restrained for so long, are emerging with ready cash to plough into property in the £400,000 to £750,000 range, whether retail unit or hotel, where they can expect a better return than on most other asset classes.

Buyers range typically from retired couples wanting to diversify their portfolios to professionals with idle money.

Above £1 million, the investment money tends to come from property companies who have exhausted their search for bargains in over-priced London and Manchester – and, more recently, the north-east of England.

The perception that “cheap” opportunities await in Glasgow and Edinburgh has become rather outdated and Aberdeen, which was lying with its throat cut for so long, has strengthened and regained some of its feelgood factor.

The industrial market, in line with the rest of the UK, is very strong, although there is no single reason why this should be the case.

Rather than just the weight of money in the market from investors, it seems the lack of speculative development means occupation levels across the country are at a high.

The reason for this dearth of building is twofold: it has been hard to finance and the cost of producing industrial units is so high that in many instances it becomes unviable.

As a result, the secondary units on the market are getting another shot.

The combination of rapidly reduced supply and increasing demand has created a market that is performing vigorously.

Distribution, as a sector, is doing very well, as consumption inexorably migrates online.

At a lower level, the popularity of industrial units for businesses such as scaffolders and builders reflects an economy which is on a relatively even keel.

This strength is not quite reflected in the office sector, which remains patchy. In Glasgow it continues to be evident that the new Grade A stock lets well.

However, beneath the Grade A stock, the market is weaker, with a surplus of Grade B vacancies.

Overall, in the UK, there are clearly factors at play changing the face of the office landscape, with new working patterns and more reliance upon online systems, meaning a reduction in need for existing office stock.

This has meant an evolving scenario looking to change of use for many buildings.

Rather than struggle to re-let them, owners are selling them as suitable for conversion to hotels, student accommodation or private residential occupation.

It’s an intriguing market and optimism can justifiably prevail.

Jonathan McManus is a director in the Glasgow commercial agency DM Hall