Scottish property deals top £2 billion but outlook for 2020 is mixed - Colliers snapshot

Scotland’s commercial property sector suffered a “disappointing” closing quarter in 2019 but deals still broke through the £2 billion mark for the sixth year running, according to a fresh snapshot of the market.

The former RBS office on Dundas Street in Edinburgh was among the transactions undertaken during the latest period. Picture: Lisa Ferguson

The quarterly Scotland Snapshot report from property consultancy Colliers International shows investment volumes slowed from a “very strong” £718 million in the third quarter, to £396m in the final three months of 2019.

Douglas McPhail, head of Colliers International in Scotland, said: “Despite the slightly disappointing end to the year, annual transaction activity broke through the £2bn mark for the sixth year running. Compared to 2018, however, annual volumes were down by 23 per cent, which is broadly consistent with the UK trend.”

The findings echo research published last month by property firm Knight Frank, which noted that just over £2bn was invested in the market in 2019. The figure was 10.4 per cent below the five-year average after a quiet final quarter when the UK went to the polls for the general election.

Colliers said the bright point on the property investment landscape continued to be the country’s appeal to foreign investors. Over the course of last year, they accounted for 56 per cent of all Scottish commercial property transactions.

Elliot Cassels, director of capital markets at Colliers in Edinburgh, noted: “Overseas investors spent £1.1bn in 2019, the second-highest figure on record and accounting for over half of all commercial property transaction volumes.”

Aberdeen

The snapshot revealed that Scotland’s office sector was of prime interest during the fourth quarter. The largest deal in the three-month period was LCN Capital Partners’ purchase of a 216,000-square-foot office at 1 City Park in Aberdeen for £89.9m, at 6.89 per cent implied yield.

This was followed by the sale of Edinburgh’s 113 Dundas Street for £36m at an undisclosed yield. The 228,816 sq ft office building is available for refurbishment or conversion to alternative uses.

Only a very limited number of small retail transactions were recorded in the three months to 31 December.

McPhail added: “The Scottish retail sector is facing several challenges, including structural changes driven by changes in consumer habits and new technology. Therefore, retailers have to adjust by refining their business models and landlords will have to become more accommodating.”

Colliers’ view is that rents in the retail sector will continue to fall across most market segments as more space becomes redundant. In Edinburgh, the arrival on the scene of the new St James Centre will have a “cooling effect” on rental values elsewhere in the capital.