Scottish commercial property investment market runs out of steam

Scotland was left in the slow lane last year when it comes to investment in commercial property, suffering a double-digit drop compared with a rise across the UK, new research out today reveals.

Commercial property space in Edinburgh. Picture: Raymond Keith

Property experts said the “political landscape” during 2015 may have affected the marketplace, after an 11 per cent slide on 2014’s total, to just over £2.1 billion.

The latest quarterly figures from commercial property consultancy Lambert Smith Hampton (LSH) also show a drop in the number of deals in Scotland, with 17 completed during the final three months of last year, against 36 in the fourth quarter of 2014. The average deal size was down marginally, from just below £27.6 million in the fourth quarter of 2014 to £26.1m in the same quarter last year.

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On a positive note, overseas investors continued to see value for money in the Scottish market and dominated activity with £323m invested in the final quarter of 2015. At £142m, the “other” sector, which includes hotels, leisure and other specialist accommodation, accounted for almost a third of the total invested.

Ewen White, director of capital markets at LSH in Glasgow, said: “It is difficult to draw comparisons with 2014 due to the independence referendum and its impact upon the transactional market here in Scotland. A recurring theme during 2015 has been the numerous new entrants to the Scottish market who have identified the opportunity to acquire stock at a significant discount to the English regions. We expect this trend will continue.

“The ‘other’ sector continues to expand as developers provide stock and investors look to boost their exposure to this increasingly important asset class.”

According to the research, investment in commercial property across the whole of the UK rose last year. The total figure of £64.3bn for 2015 is 
4 per cent up on the previous year and a new annual record.

The overall UK performance was bolstered by a strong end to the year, with investment between October and December reaching £15.7bn, 23 per cent higher than in the previous quarter.

Buoyant demand for alternative assets – such as hotels, student accommodation and healthcare – is said to have been a key driver of activity last year, with investment ­rising by 53 per cent year on year, to £14.8bn.

Overseas investors were instrumental to the record year. Inflows from foreign buyers rose by 9 per cent and accounted for a record 50 per cent share of total UK volume. North America was the dominant buyer, making up 46 per cent of overseas investment.

Ezra Nahome, chief executive of LSH, said: “If anything, political developments arguably pose the greatest risks to the market. A period of uncertainty in the run-up to the UK’s referendum on the EU, coupled with a sense that some of the value has gone from the market, may weigh down investment activity.”