Edinburgh office investment surges thanks to Koreans

Investment in Edinburgh offices in the first six months of the year has outstripped last year’s annual total as Asian buyers target the capital, a new report reveals.

Report also shows that most of the big deals in the Scottish capital are being conducted off market. Picture: Contributed
Report also shows that most of the big deals in the Scottish capital are being conducted off market. Picture: Contributed

Property consultancy Knight Frank pointed to a flurry of major deals in the second quarter of 2019, helping to take total investment to nearly £310 million between January and June. That puts the 2019 to-date figure comfortably ahead of the previous 12 months’ total of £284m.

The six-month figure was buoyed by two recent deals.

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In May, one of Germany’s largest pension funds purchased 4-8 St Andrew Square for £120m. The city centre buildings house offices for pensions and investment giant Standard Life Aberdeen, a number of restaurants including The Refinery, The Ivy and Gaucho, as well as a large TK Maxx store.

SLA’s investment arm, Aberdeen Standard Investments, and Peveril Securities were responsible for redeveloping the site in 2016 under a joint venture.

The acquisition of 4-8 St Andrew Square was followed in June by the £100m purchase of the Leonardo Innovation Hub at Crewe Toll by an unnamed Korean investor.

Earlier in the year, a £55m property at Gyle Square was also acquired by Korean investors.

Korean funds have now made four major purchases in Scotland since their first transaction in 2017, including the £48m deal for Glasgow’s 110 St Vincent Street just last month.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “It’s been a great start to the year in Edinburgh, with a number of large transactions for major assets.

“That we had two nine-figure deals conclude against an uncertain political and macro-economic backdrop is testament to the strength and diversity of demand for prime commercial property in the city.

“There is an almost insatiable appetite among investors for secure long-dated income and prime offices. Despite Brexit, Scotland is seen as providing stability at a competitive price.”

He added: “What’s noteworthy about most of the major transactions in Edinburgh is that they are being conducted off market by overseas money.

“While it might seem counter-intuitive to limit the number of interested parties by seeking out specific buyers, it’s turning out to be the best way of concluding deals.

“The purchasers know they stand a good chance of acquiring the asset and are willing to pay a premium in return.”

A study published last week by fellow property adviser CBRE showed that the Edinburgh office market was in a “healthy” state.

Take-up of office space in the second quarter amounted to 176,549 square feet – just 9,210 sq ft shy of the previous quarter’s tally. Annual take up at the end of Q2 2019 was up 2 per cent on the previous 12 months.