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Levels of investment in Scotland’s commercial property market have hit a record high in the second quarter of 2018 following a sluggish start, thanks in part to the resurgence of domestic investors, according to JLL’s half year capital markets review.
Despite a sluggish Q1, a record total of £1.4bn was invested between January and June this year, an 86 per cent increase on the same period in 2017, and well above the UK average volume growth of 23 per cent.
This has been driven by the major cities, with £692m traded in Edinburgh and £344m in Glasgow.
The fallout from the Scottish referendum in 2014 saw many UK institutions exercise greater caution for a number of years, opening the door to investors from Europe and further afield. However, during the first two quarters of 2018, UK funds have been far more active than they have been in the previous six months, especially for larger assets and prime opportunities in Scotland, say JLL.
UK based Hermes Real Estate recently acquired the Glasgow office development Skypark, paying c£80 million for the 550,000 sq ft scheme which employs 4,500 people across 50 businesses. JLL worked for Hudson Advisors on the sale.
Other key deals involving domestic investors in the first half of 2018 include Aberdeen Standard Investments purchase of a 113-unit residential block build to rent (BTR) scheme in Edinburgh for £27.5m. At the turn of the year, Rockspring Property Investment Managers acquired a prime office / retail opportunity at 9-10 St Andrew Square for £25.75 million.
Chris Macfarlane, Director at JLL, said: “There is no suggestion that international investors have lost interest in Scotland, but it’s clear that UK funds have found a renewed confidence and the fire power to compete for the biggest deals. A dearth of quality stock has meant that when prime opportunities do come to the market, particularly for larger lot sizes, pricing is holding up well.
The office sector has seen the most activity, but the largest deals were for Edinburgh’s Fort Kinnaird Retail Park (£167m) and Waldorf Astoria hotel (£85m), highlighting Scotland’s broad appeal. Also significant was M&G’s purchase of Haymarket in Edinburgh for £49m, ahead of a proposed £300m redevelopment.
Macfarlane continued: “As appetite for risk remains comparatively low, the premium attached to long income will continue to increase. Offices in Glasgow will also continue to do well thanks to their comparative value compared to other regions in the UK. We also think that the second half of the year will see further yield compression especially for office and industrial stock in Scotland.”