Scotland’s retail sector offers 'compelling opportunities for brave investors'

Scotland’s high street retail sector offers “compelling opportunities” for investors despite economic headwinds, although it will be a case of “fortune favouring the brave” for those diving in, according to a new report.

Releasing its review of the Scottish property investment market for the second quarter of 2023, Lismore Real Estate Advisors said around 56 per cent of respondents were open to investing in high street retail, acknowledging that rents have been “re-based significantly” and are now in line with the market. Property companies show more positivity, while funds are reducing their retail weightings, the study revealed. This is creating an opportunity for “well-financed” investors to acquire prime retail assets with potential for rental growth.

Lismore associate Chris Thornton said: “The high street retail sector has rebounded surprisingly well, becoming more resilient and dynamic. This presents compelling opportunities for investors due to future rental growth and yield discounts for prime assets compared to other sectors. Prime retail locations such as Buchanan Street in Glasgow and George Street in Edinburgh are experiencing rental growth with low vacancy rates. Rents have decreased below historic averages, attracting jewellers, watch brands, beauty and fashion retailers.

“Cash buyers will dominate the market, and caution will prevail due to economic uncertainties. Investing now in quality high street properties may prove advantageous, although it will be a case of fortune favouring the brave.”

Overall, the second quarter saw £396 million of property assets traded, which is down 35 per cent on the same period a year earlier, but 6 per cent ahead of the five-year average. A number of notable deals were completed, particularly in the retail sector, the largest being the £90m sale of Fife Central Retail Park in Kirkcaldy by Capreon to a US investor, followed by L&G Investment Management’s £48m sale of Sainsbury’s in Darnley to Federated Hermes.

Thornton added: “We are seeing some early signs that things are improving, as stock on the market has increased significantly since Q1 and sellers are now more aligned with buyers in terms of pricing aspirations. A number of significant opportunities are being prepared for sale post summer and while challenges remain, we are anticipating a stronger deal flow during the second half of the year.”

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