'Wall of overseas capital' chasing Scottish property assets as volumes rise 24% in volatile year

Investment in Scottish commercial property has held up in the face of volatile market conditions with a “wall of overseas capital” chasing prime assets, a new report reveals.

Releasing its latest review, property advisor Lismore Real Estate Advisors said the investment market had “fared surprisingly well” with investment volumes trading at just under £1.35 billion in 2021, a 24 per cent increase on the total for 2020.

The emergence of the Omicron variant and the return of restrictions “continues to bring challenges across the entire property market and global economy”, the firm added, but fourth-quarter trading remained strong at some £520 million, up 27 per cent on the closing three months of 2020.

Key deals included the £32.2m sale of a Sainsbury’s supermarket building at Inglis Green Road, Edinburgh by Inglis Property LLP to Urbium Capital Partners LLP, the off-market sale of Scania at Eurocentral, next to the M8 motorway, by West Ranga Property Group to DVS Property for £10.725m, and the £58m sale of Exchange Place One in Edinburgh to CBRE Investment Management.

Key deals highlighted in the Lismore review include the off-market sale of Scania at Eurocentral by West Ranga Property Group to DVS Property.

Amid hopes for a brighter 2022, the latest investor research undertaken by Lismore predicts that the top three performing sectors this year will be retail warehousing (36 per cent), distribution (28 per cent) and multi-let industrials (17 per cent).

Although prime yields have begun to harden, retail warehousing still offers “some good value” given the rapidly changing retail market and strong occupational demand, the report notes.

Lismore director Chris Macfarlane said: “The wall of overseas capital chasing stock continues and pricing reached pre-pandemic levels in the food stores, logistics and retail warehousing sectors.

“However, challenges remain for significant parts of in-town retail/leisure and investors continue to grapple with offices, other than those of the very best quality or which can be adapted to meet more challenging ESG [environmental, social, and governance] credentials.

“UK institutional activity remains very focused on longer income defensive stock including retail warehousing and distribution, although we have seen a welcome return by an institution to the Edinburgh office market for the first time in a number of years.”

He added: “Overseas investors continue to target Scotland (Edinburgh in particular), with buyers from the Middle East and mainland Europe all remaining active but the overwhelming weight of capital has been from North America.”

A significant majority - 69 per cent - of respondents in Lismore’s research expect to be net buyers in 2022, with 21 per cent said to be neutral.

The latest property review also features an in-depth interview with James Dunne, head of UK transactions at investment giant Abrdn.

He said: “The pandemic has highlighted the benefits of having a diversity of income and sectors within a portfolio.

“The breadth of the alternative sectors provides an increasingly significant part of the real estate investment market, with the hotel sector offering an interesting pattern in durability. However, this recovery trend has been narrow and will continue to be driven by the best assets and the best locations significantly outperforming the market,” Dunne added.

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