Commercial property: City investment balances out

The sale of 7 West Nile Street helped to spread spending

Activity levels in Scotland’s commercial investment market throughout 2016 were dominated by Edinburgh offices, which accounted for approximately 70 per cent of the total volume, but the first quarter of 2017 tells a different story.

“At the end of Q1 2017 investment activity presents a more balanced picture across Edinburgh, Glasgow and Aberdeen,” says Stuart Orr, director at Savills.

While there was a marked downturn in performance compared with the previous year, which Savills puts down to the effects of political uncertainty, in excess of £330 million was transacted in commercial real estate in the first quarter of 2017.

Investment in offices accounted for nearly £125m of that.

Orr says: “Aberdeen witnessed the largest deal with LCN Capital Partner’s £41m acquisition of Lloyds Register Building at Prime 4.

“Edinburgh and Glasgow’s transactional volumes were reasonably balanced.

“An Indian client of HSBC Private Bank acquired Exchange Place 2 and 3 in Edinburgh for £36m.

“In Glasgow, Credit Suisse purchased Cuprum on Argyle Street for £25m, whilst Tele-real Trillium paid £6.5m for  7 West Nile Street.”

A further £385m of property is currently under offer, of which office assets account for just over 40 per cent. Of this, 70 per cent of volumes are in Edinburgh, with 30 per cent in Glasgow.

Orr says: “We expect a number of larger, high-profile office buildings in Glasgow to become available during the course of 2017, and therefore we anticipate this more balanced picture to continue to year-end.”

According to Savills’ figures, the industrial market was the most active by number of deals in the first quarter of 2017.

A total of £83.5m was traded across seven deals, the most notable of which was Dubai-based Rasmala’s acquisition of the Amazon unit at Dunfermline for £54m, reflecting 5.20 per cent net initial yield.

Other significant transactions included Legal & General buying the Exel Tradeteam unit at Cambuslang for £9m.

The market is reflecting the continued sense of political uncertainty, however.

“The overall Q1 performance reflects a drop of around 46.7 per cent compared to Q1 2016, which is largely as a consequence of the uncertainty caused by the UK Government serving Article 50 to trigger Brexit negotiations and the Scottish Government serving a Section 30 letter in response requesting consent to another referendum on independence, both occurring during Q1.”

The political situation does offer advantages to overseas investors.

Orr says: “Since the Brexit vote on 23 June to the end of Q1 2017, sterling has fallen against the US dollar by 12.8 per cent.

“This is clearly welcome news for foreign investors who continue to dominate activity levels in Scotland by as much as 70 per cent in Q1.

“We envisage that the Scottish market will continue to be dominated by overseas investors in the year ahead, who are attracted by the widening yield divergence to the rest of the UK pricing set against robust occupier markets, whilst benefitting from the currency play.”