Edinburgh set for 'flurry of deals' as commercial property investment pushes beyond 2022 total

Edinburgh is expected to see a “flurry of deals” before the end of the year after investment in the city’s commercial property market pushed ahead of last year’s total.

Industry experts said investors continued to show interest in the Scottish capital despite the “challenging economic backdrop”. Figures from commercial property consultancy Knight Frank show that some £596 million of property assets have changed hands in the year to date in Edinburgh, up on the £555m recorded during the entirety of 2022.

Investment in retail property has surged by 70 per cent to £170m from £102m last year, and is on track for its best 12 months since 2017. Among the retail assets to trade hands during 2023 are Craigleith Retail Park and Corstorphine Retail Park.

Knight Frank’s analysis of data from Real Capital Analytics shows that offices have been the biggest source of deal activity, with £189m of assets trading so far this year – meaning the sector could get close to matching last year’s £255m providing there is a final rush of deals. Argyle House, the well-known brutalist office block in the shadow of Edinburgh Castle, was sold this year in one of the city’s biggest office deals of 2023. An office block at 7 Castle Street also changed hands earlier this year.

An office building at 7 Castle Street was one of the property investment deals completed in Edinburgh during 2023.

Hotels have also been an active sector with £114m worth of deals changing hands. The figure is the second highest in the last five years, after 2021’s £196m. A deal for Edinburgh’s five-star Waldorf Astoria was announced in July and several properties on St Andrew Square have been purchased for redevelopment to hotels. Institutional buyers have been behind 41 per cent of total investment volumes in the city during 2023 to date, with international investors representing another 37 per cent. Edinburgh accounts for around 46 per cent of total investment in Scottish commercial property so far this year.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “Commercial property investment volumes in most UK cities have fallen on the back of rising interest rates and the attractive returns available on cash and safe assets, like bonds. But, Edinburgh’s investment market has remained resilient, with deal activity already exceeding last year.

“Part of the reason for that is the compelling fundamentals the city continues to offer. The occupier market has remained strong throughout the challenges of the last few years, with limited development sites and office space being converted to other uses. The hotel market has bounced back from lockdown and the city’s retail stock is also adjusting to a period of change.”

He added: “With a number of assets currently on the market and buyer and seller expectations increasingly moving closer together, all things being equal, we could see a flurry of deals in the city before the end of the year and a positive start to 2024.”

Research last month from Lismore Real Estate Advisors suggested that confidence was returning to Scotland’s property investment market and the patience shown by “opportunistic” buyers is likely to be rewarded in the “not too distant future”.

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