Scotland’s commercial property market enjoyed a “solid” year for investment, with more than £2.5 billion ploughed into offices, shops, hotels, industrial units and specialist sectors such as student accommodation.
The return of some of the big UK funds and Glasgow’s best year for offices in more than a decade helped support investment, with the market outperforming the five-year average, according to analysis by property adviser Knight Frank.
The total of just over £2.5bn for 2018 is ahead of the £2.46bn annual average since 2014.
UK funds increased their investment by 58 per cent last year, rising from £487 million to £771m and up 255 per cent on 2016’s low point of £217m, the firm noted. Meanwhile, overseas investors were the most prolific purchasers in Scotland, accounting for some £920m of the overall figure.
Alasdair Steele, head of Scotland commercial at Knight Frank, said: “It was a solid year for Scotland as we saw UK funds return to the market and overseas investors maintain their high level of interest.
“The demand for Scottish commercial property has seen prime yields edge towards 4.5 per cent; but Edinburgh and Glasgow, in particular, still offer good value compared to London and some of the UK’s other major cities.
“Compelling supply-demand dynamics mean that Edinburgh is skewed towards landlords, with rental growth expected over the next 12 months. Of course, that’s a double-edged sword and more quality commercial space will be needed to accommodate the new, growing businesses which will ultimately drive economic growth in the city.”
John Rae, capital markets partner and head of office at Knight Frank Glasgow, added: “It was a terrific year for investment in Glasgow’s commercial property market – particularly offices. Many of the biggest deals in the city involved overseas buyers, who have become the main drivers of transactions for prime office assets in the city. We would anticipate that remaining the case for the year ahead.
“With so little new stock coming onto the market over the next 12 months, we’re anticipating rental growth in Glasgow – which is good news for investors. However, like Edinburgh, it’s becoming a difficult market for investors to get into, with yields hardening and a great deal of competition for the best available assets.”
Investment in Glasgow offices hit its highest level since 2006, at £468m. This included major deals for the Skypark campus in Finnieston, the forward-funding acquisition of Atlantic Square on the Broomielaw, and Legal & General’s purchase of Atlantic Quay 3 for £50m.
A lack of available stock saw investors acquire some £284m of offices in Edinburgh – down on 2017’s £411m.