Scottish property investment showing 'promising signs of improvement' amid pool of cash

Sellers said to be aligning with “market realities” as new research looking at year ahead is released.

Scotland’s commercial property investment market is showing “promising signs of improvement” with deals up to £10 million stoking demand, new research reveals.

Industry experts said a more settled lending environment, realistic property values and a “substantial pool of waiting capital” suggest that momentum is building, following a “tumultuous” 2023. Publishing its latest review of the Scottish investment market, Lismore Real Estate Advisors said the past 12 months had thrown up a “perfect storm of factors”, contributing to a challenging environment for property sellers and buyers. It noted that despite year-end volumes being down on the five-year average, there were signs of improvement.

Total investment volumes for 2023 are expected to end close to £1.4 billion, according to Lismore, reflecting a 20 per cent decrease from 2022. Pricing trends indicate a shift from the caution of “catching a falling knife” to a more realistic approach, with sellers aligning with market realities, it added.

The highlight of the final quarter of 2023 was the £45m-plus sale of The Centre in Livingston.

While methodologies vary, recent research from other property advisors point to similar trends in 2023. Figures from Savills last week suggested that commercial investment volumes in Scotland totalled just over £1.49bn in 2023, which it said marked a 34 per cent decline on the previous year’s haul.

Lismore director Chris Macfarlane said: “Contrary to the belief that bigger is better, the most liquid part of the market remains sub-£10m, attracting private buyers with limited debt requirements. The cost of money appears to be stabilising, offering some relief after a turbulent period. Well-capitalised investors with minimal legacy issues are encouraged to seize prime/core-plus assets in the current market.

“While logistics and multi-let industrials remain stable, offices pose a challenge with divergent opinions on future prospects. Retail warehousing emerges as a sector offering good value, attracting interest from investors.”

He added: “Buyer activity remains selective and opportunistic, with a focus on sectors such as living and logistics. Core-plus buyers are finding value in offices, leisure and retail warehousing, driven by attractive pricing where debt can be accretive.”

The largest transaction of the final quarter of 2023 was the £45m-plus sale of The Centre in Livingston, one of Scotland’s largest shopping centres. Other noteworthy deals included Abrdn’s £30m sale of Kingsway West Retail Park in Dundee and Patrizia’s £20m sale of 9-10 St Andrew Square in Edinburgh as a hotel development opportunity.

The latest investor research undertaken by Lismore indicates that optimism prevails as 96 per cent foresee 2024 as a year of opportunity, despite the sluggish end to last year. Funds, managers and private equity anticipate positive prospects, benefiting from softer yields and “thin” buyer pools in the first half of the new year, Lismore added. Property companies are striking a more cautious note, with 12 per cent expressing pessimism, possibly anticipating heightened competition. The top-performing sectors in 2024 are predicted to be living, industrial and retail warehousing.

Macfarlane added: “As we raise a toast to the prospects of 2024, the property market in Scotland navigates challenges, embracing opportunities for growth and resilience. The road ahead may have its twists, but with optimism and strategic insights, industry players are poised for a year of progress and opportunities.”

Scottish commercial property investment falls by third but key retail assets snapped up