More than £2.5 billion is expected to have been invested in Scotland’s commercial property market during 2018, a 10 per cent increase on the previous year.
Figures from Savills show that £2.49bn of deals had already completed by the middle of December with a number of others expected to complete by the year end.
The total so far means the 2018 performance is almost 50 per cent ahead of the ten-year average for commercial investment in Scotland.
The lion’s share of investment activity during the year was focused on the offices sector which represented some 45 per cent of all transactions. Domestic investors have accounted for over half of all office transactions in 2018 as they became increasing active in a market where international investors have been dominant in recent years.
Key office deals have included the sale of The Mint building in Edinburgh to Hines for £53 million.
Savills said another significant trend seen during the year is the greater spread of investment activity across Scotland’s main cities unlike previous years which saw investors focus predominantly on Edinburgh.
In 2018 almost twice as many office transactions took place in Glasgow – about £300m – than Edinburgh, and Aberdeen also saw a rise in activity with close to £170m changing hands.
Nick Penny, head of Scotland at Savills and director in the investment team, said the fundamentals for the commercial property market in Scotland remain very strong.
“Regardless of Brexit, the simple economic argument around supply and demand of good quality offices is very compelling for Scotland.”
Penny said that the development pipeline had been hit harder than the rest of the UK following the financial crash and uncertainty around the independence referendum.
“The result is a critically low level of Grade A office supply in Edinburgh and Glasgow that makes a strong case for rental growth and new development. Highlighting this point is the reality that Edinburgh’s development pipeline is now almost entirely pre-let,” he said.
“By investing in Edinburgh, and Glasgow, you are investing in a landlords’ market as supply is so limited and with its World Heritage status there will be restricted opportunity to change this dynamic in Edinburgh,” Penny pointed out.
“Meanwhile, in Aberdeen a gradual improving economy and uptick in office activity being led by the oil and gas sector is piquing the interest of those investors looking for value.”
Savills research shows prime office yields in Edinburgh at the end of 2018 stood at 4.5 per cent, in Glasgow 5.25 per cent and 6.25 per cent in Aberdeen.