Scottish commercial property robust against uncertain backdrop

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Investment in Scotland’s commercial property market remained resilient in the first six months of the year despite political instability, according to analysis from Knight Frank.

The independent real estate consultancy found that £804 million was spent in Scotland in H1 2017, down 11.8% on the same period in 2016 – but healthy given the political uncertainty experienced in the first half of the year.

Edinburgh saw the highest levels of activity between January and June, with £326 million spent on commercial property, compared to £401.16 million in the first half of last year. Among the biggest deals of the period were the sales of Exchange Place 1,2, and 3 for a reported total of £83 million and the sale of Silvan House in Corstorphine for £18 million.

Glasgow was broadly in line with the same period in 2016, with £182.05 million spent in the first half of 2017 and £189.5 million in the first six months of last year. Among the biggest deals was Credit Suisse’s £28-million purchase of Cuprum in Glasgow’s International Financial Services District.

Trading volumes in Aberdeen continued to recover from the challenges of the sustained low oil price with £80 million invested in commercial property, compared to £49.46 million in H1 2016. The majority of this figure was made up by LCN Capital Partners’ purchase of Prime Four Business Park for £43.2 million.

Alasdair Steele, Head of Scotland Commercial at Knight Frank, said: “Despite the overall figure dropping, the first half of 2017 has seen a steady level of investment. Edinburgh, in particular, had a strong first half in 2016, so it is encouraging to see that transactional levels so far this year are broadly keeping pace. There are a number of deals on the verge of going through in the capital which make us confident of a strong second half to the year.

“Recent transactions suggest prime office yields remain at 5.25%; although, there is some evidence of downward pressure, as demand remains strong and stock continues to be hard to find. Despite this, yields still look reasonable value compared to many European cities, especially when the cost of Sterling is taken into account.

“What’s more, the announcement of the Edinburgh Region City Deal is a welcome boost to the city and its surrounds. The £1 billion investment marks a significant opportunity and we’d expect to see this have a positive impact on Edinburgh property, as well as the wider business community.”

John Rae, Head of Knight Frank’s Glasgow office, added: “Investment volumes in Glasgow have been lower than in Edinburgh – but it’s still been a resilient period, despite political uncertainty pervading. Sentiment towards the city has definitely improved in the past 12 months, backed by a strong occupier market and major political events seemingly out of the way for now.

“Our outlook for Glasgow remains positive: we’re hopeful the second half of the year will see a renewed level of activity. A number of big deals could be on the horizon in the office and retail sectors, both in the central business district and out of town. There are large, prime assets on the market, such as Great Western Retail Park, which is up for sale at a price of £80 million.”

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