Scotland’s property investment market eyes recovery with 'significant' deals in pipeline

Scotland’s property investment market may be on the road to recovery, despite activity remaining below the long-term average, a new report suggests.

Lismore Real Estate Advisors’ quarterly review points to more positive times ahead as deal activity gathers pace following the economic fallout from the pandemic.

Transaction volumes in quarter two have increased by 71 per cent since the opening three months of 2021, with some £300 million traded, though activity remains some 30 per cent below the five-year average.

The firm predicts that the second half of the year will be more positive, with three “significant” transactions north of £50m understood to be in the pipeline.

A computer generated image showing how the new Belgrave Logistics Park in Bellshill will look when completed.

The review indicates that prime logistics yields are continuing to harden at 4.5 per cent. Prime Edinburgh office yields are likely to sharpen before the year end, Lismore noted, with limited stock and strong occupational demand the key drivers.

In the “value-add” sector, offices capable of re-positioning, first-generation retail warehousing with underlying industrial or residential potential are in demand, albeit the market remains relatively tight for these kind of deals, the firm added.

Chris Thornton, associate at Lismore, said: “Activity in the last quarter has continued to see the wall of overseas equity targeting our best long income assets.

“This has included the emergence of American REITs [real estate investment trusts] in the Scottish market, mainly focused on longer income retail warehousing, with schemes anchored by food stores and value retailers, being particularly liquid.

“We have also seen the continual growing appetite for anything close to the life sciences sector. On the downside, city centres are taking time to regain momentum with footfall remaining fickle and retailers and restaurateurs having to work very hard to attract customers back through the doors.

“Retail re-purposing has started in some of the strongest streets but there remains significant challenges for those city centre locations unable to attract alternative use investment.”

He added: “Overseas investors with a UK presence (and capable of travel) remain active, with US and middle eastern being the two most active sources of equity. The weight of capital waiting to be deployed is considerable, suggesting it should be a busy end to 2021 with more stock to come to the market.”

The report noted that speculative development was becoming more feasible and with a demand/supply imbalance, those developers brave enough to get in early will be “well-placed to achieve letting and investment sale success”.

It highlighted Knight Property Group, which is at the forefront of speculative logistics development in Scotland at Belgrave Logistics Park. When complete, it will extend to some 250,000 square feet of accommodation on the 14-acre former Devro factory site in Bellshill.

Simon Cusiter, director of Lismore, said: “Appetite is strong across the board in the industrial and logistics sector, but we are certainly witnessing a ‘tiering effect’ when it comes to sub-sectors and rents.

“In the short-term we anticipate the new development focus being on the golden triangle of the M8/A725 and M74, but the demand/supply dynamics and lack of oven-ready land will certainly open up alternative locations going forward.”

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