Why Scotland’s property professionals are upbeat despite miserable first-half numbers

“The headline figure for the last six months might not paint the best picture, but the reality on the ground feels a bit more positive” – Alasdair Steele, Knight Frank

Investment in Scottish commercial property fell by almost a fifth in the first six months of 2024 as the Bank of England dithered over interest rates, new figures reveal.

Despite investors pausing for thought in the latter part of the first half, there is some “cautious optimism” as the buyer pool deepens, according to the latest market snapshot from property consultancy Knight Frank.

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The firm’s analysis of Real Capital Analytics data found that nearly £750 million was invested in Scottish commercial property assets between January and June of this year. This was down 19 per cent on the £922m in the same period last year and 22 per cent below the five-year average of £954m, but it was more than double 2020’s £447m, when the market was rocked by the pandemic.

Knight Frank highlighted a number of very recent deals including the sale of Edinburgh’s 40 Torphichen Street.Knight Frank highlighted a number of very recent deals including the sale of Edinburgh’s 40 Torphichen Street.
Knight Frank highlighted a number of very recent deals including the sale of Edinburgh’s 40 Torphichen Street.

Retail property accounted for the majority of investment by sector type, with a 51 per cent share of the total first-half volume. Hotels made up 19 per cent, while offices and industrials accounted for 16 per cent and 10 per cent respectively.

A breakdown of the data showed that real estate investment trusts (REITs) and listed property companies were the most active buyers, with a 32 per cent share of investment volumes. International investors accounted for a further 30 per cent, while private capital made up 20 per cent, highlighting the increasing diversity of the buyer pool for Scottish commercial property.

Despite the year-on-year fall in investment volumes in the first half, Knight Frank said there had been a recent pick up in activity, with its capital markets team having recently completed on a “flurry of deals” totalling in excess of £100 million. These included the sale of Edinburgh’s 40 Torphichen Street, and in Glasgow the acquisition of 1 West Regent Street and a deal for a large multi-storey car park.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “At the start of 2024, it looked likely that interest rates would be cut at least once in the first six months of the year and, as a result, we had a much stronger Q1 than 2023. However, a mixed set of inflation figures and economic indicators in the first few months, combined with the calling of the general election, meant many investors paused decision-making during the second quarter to see if a clearer picture would emerge.

“While that uncertainty has slowed transactions, there has still been a relatively healthy level of deal activity and interest - particularly in recent weeks. The headline figure for the last six months might not paint the best picture, but the reality on the ground feels a bit more positive.

“The spread of different types of investors in the last six months is also worth noting,” he added. “Over the last decade, international buyers have come to account for the majority of investment in Scotland, but in the year to date there has been a much more even share, with institutional investors buying as well as selling, alongside increased interest from private equity and property companies. A deeper pool of buyers can only bode well for the remainder of 2024.”

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