Scotland’s commercial property market on 'road to recovery' after investment rebound

Scotland’s commercial property market has begun its “road to recovery” thanks to strong investor appetite for industrial and retail warehousing assets, new figures reveal.

Research by global property consultancy Knight Frank found that £1.2 billion has been invested in Scottish commercial property in the first three quarters of 2021, up by almost 21 per cent on the equivalent period last year as the sector rebounds from the pandemic.

By way of comparison, investors spent nearly £1.7bn during the same nine-month period in 2019, prior to the Covid crisis.

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The latest research shows that overseas investors remained the most active buyers of commercial property assets in Scotland, accounting for just over £500 million of overall volumes. Private property companies represented a further £322m, equivalent to just over one-quarter of total investment.

Neptune Energy’s Aberdeen HQ marked the biggest deal in the city since the pandemic, and was transacted in the second quarter of the year. Picture: Neil Gordon

Property experts said industrial and retail warehousing assets had been the stand-out investment performers in 2021, with volumes outpacing the equivalent periods in both 2019 and 2020.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “Our figures suggest that Scotland is edging closer towards the level of activity we saw prior to the Covid-19 pandemic.

“While there is still some way to go, the economy was locked down for much of the first half of the year and there has been a noticeable upturn in investor sentiment since the start of the summer.

“Industrials and retail warehousing have seen the clearest upturn in activity, with investment volumes more or less doubling in both markets.

“Prime offices remain in high demand and, although investment volumes in offices are still some way off where they were in 2019, we expect to see more activity in this sector towards the end of the year and into 2022.”

He added: “There is a weight of money looking to be invested and good quality stock coming onto the market. We expect that to drive deal activity in the final quarter of the year and, with that, we could begin to see prime yields fall – as has already been the case with some recent deals in Edinburgh.”

The industrial sector attracted £259m of investment in the first nine months of 2021, more than double 2019’s £109m and 2020’s £112m. Retail warehousing accounted for £232m in the first three quarters of 2021, compared to £213m and £117m in 2019 and 2020.

Meanwhile, offices saw £293m worth of deals in the nine months to the end of September, up on £240m during the same period last year, but still below the £575m transacted in 2019.

Investment volumes in leisure property – such as restaurants and cafes – was just £27m, marginally up on the £20m registered last year, but significantly down on 2019’s £135m.

A report earlier this week suggested that office occupier markets in Edinburgh, Glasgow and Aberdeen were in recovery mode.

Take-up for the Glasgow office market totalled 289,209 square feet in the third quarter, the highest quarterly total since before the first pandemic-related lockdown, according to a report by property advisor CBRE.

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