Confidence returns to commercial property sector

The Ryden review of the property market covers the six months to the end of September.
The Ryden review of the property market covers the six months to the end of September.
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Investor confidence is rapidly returning to Scotland’s commercial property sector as domestic political concerns ease and foreign buyers in particular take advantage of the weak pound, according to a keenly watched report.

Property consultancy Ryden said investors now adjusting to the outcome of this year’s general election and concern over a second Scottish independence referendum in the near future abating has “undoubtedly helped” to restore some confidence in the market.

Glasgow and Edinburgh have been the cities to benefit most, with foreign investors at the forefront of activity once again taking advantage of the weak pound, according to the firm’s 81st review of the property market which covers the six months to the end of September.

Improving demand and tighter supply of prime properties in the two cities has contributed to an upturn in investor demand, with several large transactions concluded over the past six months.

The current heightened investment activity levels could increase in the run up to the year end, the report predicts, with Glasgow, Edinburgh and Aberdeen all likely to see sizeable deals concluding in the next couple of months.

“This will give Aberdeen in particular a welcome boost, where the transaction volume has fallen of late due to the challenging local economy,” noted the report.

Although the implications of Brexit on the sector were still unknown, it said if there was a general tailing-off in investor demand the impact could be greater south of the Border, where yields have fallen to historically low levels in some hot spots.

“Scotland does generally offer more value and this is clearly attracting investors from the UK and overseas,” Ryden added.

The continuing shortage of Grade A office space in Glasgow and Edinburgh continues to be a key theme of the sector in Scotland, but Ryden partner Mark Robertson described central Scotland’s industrial property market as “an overnight success story, 30 years in the making”.

“The ugly duckling of the commercial sector is attracting increasing investor and developer interest due to low levels of availability and emerging evidence of strong rental growth,” he said.

Although tenants are having to pay more, the report points out that higher industrial rents are needed to encourage the development market to build new space.

“Without this, occupiers will find themselves in an even worse position when their businesses are hampered by an inability to grow.”

The retail environment continues to be challenging but the likes of Aldi and Lidl are driving expansion in the food sector.