Scotland has seen a record surge of investment this year as the market finally puts the legacy of the 2014 referendum vote behind it.
Over the first three quarters of 2018, £1.8 billion of commercial property was traded in Scotland – up 46 percent from the same period last year, according to data from JLL.
The accelerating pace of growth is being driven by the country’s major cities, with Edinburgh trading £723 million and Glasgow £590 million over the same period.
Recent deals include investment manager, M&G’s £167 million stake in Edinburgh’s Fort Kinnaird Retail Park and Twenty14 Holdings, the hospitality investment arm of Lulu Group International, acquisition of the capital’s Waldorf Astoria Hotel for £85 million. While new developments include The Haymarket, a mixed-use scheme in the centre of Edinburgh, including 338,000 square foot of office space, together with hotels, leisure and retail.
“This period of growth follows a number of years in which buyers were slightly nervous about Scotland and the political risk around the possibility of independence,” says Colin Finlayson, Director of UK capital markets at JLL. “It really changed last year, when the political situation started to look more stable.”
Scotland offers relative value when compared with other UK regions and London. In Edinburgh, office yields stood at 4.75 percent, while in London the figure is 3.5 percent, in Dublin it stands at 4 percent and 3.95 percent in Lyon.
Clamouring for space
Both Edinburgh and Glasgow suffer a shortage of office supply in central business districts – further driving up yields. In H1 Grade A office vacancy rates stood at just 1.3 percent in Edinburgh and 2 percent in Glasgow. The Big 6 UK markets of Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester have an average rate of 1.7 percent.
Last year saw over 1.1 million square foot of office take-up in Edinburgh, 41 percent up on the 10-year average, while in Glasgow 625,000 square foot was leased, 21 percent above the 10-year average.
“There is strong demand for space in Edinburgh’s city centre, and a shortage of property available for development. Virtually every scheme that has been has been started speculatively has been pre-let by completion and that’s creating a very attractive market for investors,” says Finlayson.
“In Glasgow, we’re seeing a shortage of the right type of provision. Occupiers are looking for bigger floorplans but there’s a very limited supply of 10,000 sq. ft plus,” he says. Much of this is being driven by the public sector as the Government undertakes consolidation of its offices from third-tier towns into city centres.
Finlayson says demand for the right space, is also leading investors to consider new locations for offices outside the CBD, such as Edinburgh Park in West Edinburgh and Glasgow’s Broomielaw district.
Glasgow has traditionally seen a large proportion of public sector take-up and Edinburgh is a major financial sector, also home to big name tech companies including travel website Skyscanner.
These sought-after occupiers are an attractive proposition for investors.
Finlayson says all this points to diversification in the Scottish economy. “We now have a much more balanced market. There is still a focus on financial and professional services, particularly in Edinburgh, but tech and the public sector are showing real growth and it’s a very healthy position,” he says.
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