Retail sector potential 'dark horse' as Scottish property investment market regains mojo

Property experts are predicting a more liquid Scottish investment market in 2023 with the high street retail sector tipped as a potential “dark horse”.

Releasing its latest quarterly review, Lismore Real Estate Advisors said its research indicated that a significant majority (65 per cent) of respondents expect to be net buyers in 2023, with only 12 per cent expecting to be sellers. Buying activity is likely to be from quarter two onwards, with the first few months of 2023 expected to see limited new stock on the market. It believes that the main buyers over the next 12 months are likely to be property companies and investment managers.

By the end of 2023, 69 per cent of investors anticipate an improvement in market sentiment. Investment managers are almost unanimous (90 per cent), while more than 50 per cent of funds and property company respondents expect sentiment to improve. It was also noted that there was potential for a swifter bounce back should the macro-economic environment continue to stabilise during the first quarter of the year.

Lismore director Simon Cusiter said: “The speed and extent of the pricing correction that has taken place in the latter half of 2022 has caught even the most seasoned experts by surprise. However, as with most market shocks, there comes opportunity, and we predict continued demand across various sectors, in particular, prime PBSA [purpose built student accommodation] and BTR [build to rent]. In addition, retail warehousing still offers good value, particularly in urban locations, anchored by food/value retailers and with a drive-thru offering.”

The latest report noted: “High street retail could be the dark horse for 2023, with retailers having success in driving shoppers back through promotional activity and free returns, whilst the business rates revaluation coming into effect in April 2023 offers significant reductions in their total occupational costs.”

The firm’s review of the closing months of 2022 found that funds were the biggest backers of food stores in the top three sectors with an expectation of further sale and leaseback transactions by the big four chains and continued buoyancy in the sector.

Tom Hoye, real estate transaction director at Redevco, added: “Markets tend to overreact and in that sense any downturn represents a good buying window. The question is how long that window will be open for and when is the optimum time to get back in, especially in the context of there being a lot of equity available. At the moment a lot of investors are taking stock and we’re definitely in a period of ‘price discovery’, but I expect there to be more activity in the second half of the year.”

Last week, property consultancy Knight Frank said Scotland’s commercial property market had seen investment volumes continue to recover in 2022, despite macro-economic challenges. Alasdair Steele, head of Scotland commercial at Knight Frank, said: “There are always going to be challenges on the horizon, but after a particularly difficult period there are grounds for selective optimism for the year ahead. The cost of debt appears to be easing and there is still a deep pool of buyers looking at Scotland, and the wider UK, to invest.”