Scottish property investment market to cool after bumper first half

Investment volumes in the first six months of this year were the highest since 2018 as the market continued its recovery from the pandemic, according to new analysis from real estate adviser Knight Frank.

The company found that £1.2bn of commercial property deals were completed between January and June 2022, up 54% from the same period last year. The figure is also 21% above the five-year average – although it was skewed by low investment volumes in 2020 and, to a lesser extent, in 2021, amid the economic fallout from the pandemic.

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Overseas investors accounted for more than two-thirds (68%) of the total investment figure, or £843m, with UK property companies being the second most active buyers, totaling £296m or 23.9% of volumes global investments.

Investment in retail assets increased by more than 55% from 2021, from £148m to £230m, with retail warehousing accounting for £165m of the total figure. Offices were the most popular asset class with deals worth £410m, boosted by the sale of HFD Group’s sprawling 177 Bothwell Street development in Glasgow, as part of what the believed to be a record deal for Scotland.

Edinburgh saw £400m of investment, while Glasgow accounted for £329m, according to the latest data. Retail activity in Aberdeen continued to pick up, reaching £189m, largely due to the sale of two retail warehousing assets.

Alasdair Steele, Head of Scottish Trade at Knight Frank, said: “The first half of the year highlighted some key trends that have emerged over the past two years: retail warehouses and industrials remain in strong demand, while prime offices are in high demand – underscored by the deal for 177 Bothwell Street.

“Similarly, foreign investors accounting for such a high share of investment over the past six months also highlights the strength and depth of the buyer pool for Scottish commercial property.”

Edinburgh saw £400m of investment in the first half of 2022, according to the latest research from Knight Frank.

He added: “An uncertain macroeconomic outlook will likely cool deal activity over the next two months. However, commercial real estate has generally acted as an inflation hedge for investors and, with returns in major Scotland’s relatively inexpensive cities and supported by strong occupancy markets, we expect interest to remain strong in the second half of the year.

Knight Frank’s report echoes the findings of Lismore Real Estate Advisors’ latest quarterly review, published earlier this month.

He found that the real estate investment market saw a flurry of activity before the summer but now faces “increasing headwinds”.

Lismore director Colin Finlayson said: “Cash remains king as the rising cost of capital for debt-backed investors creates an advantage for treasury investors – if they can move quickly, opportunities will appear in the second semester.

“After a strong first quarter, the cautiousness in the market was driven by the war in Ukraine, rising inflation and tougher debt conditions, causing investors to catch their breath.”

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