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More money coming from foreign investors

Scottish developments relying on overseas funds

74-77 Princes stScotland’s commercial property sector is increasingly reliant on foreign investment, according to new data which shows it to be the only part of the UK outside London to see this trend.

Examples of deals that would have traditionally been secured by UK institutions, but have gone overseas, include 125-126 Princes Street, Edinburgh, bought by US venture capitalists Northwood Investors, and 74-77 Princes Street (pictured) by German group GLL.

Overseas investors contributed a greater proportion of the overall total funds supplied which fell from £3.2 billion in 2014 to £2.2bn last year.

More than half of the foreign money –  £1.3bn (59%) – went into Edinburgh and Glasgow and compares to £1.6bn (49%) in 2014.

During the same period, the proportion of UK money invested in Edinburgh and Glasgow commercial property fell from 51% (£1.6bn) in 2014 to 41% (£900m).

The higher proportion of international over domestic investment in Scotland is not reflected in any other UK region, outside of Central London, where the percentage of domestic investment was 35% in 2015.

In 2015, 57% of all investment in UK commercial property came from the UK, and 43% came from international investors. In the same period, domestic investors made up 82% of all purchases in Manchester, and 97% of all purchases in Leeds.

The data, from JLL, found that:

·       American investment in Scotland spiked in 2015, accounting for 18% (£396m) of all transactions, compared to a 4% share in 2014 (£128m). This is a rise of £268m.

·       Compared with 1% (£32m) in 2014, Middle East investors were involved in 7% (£154m) of all Scottish investments in 2015.

·       The office sector proved to be increasingly popular accounting for c.55% of volumes – up from 38% in 2014.

The changing profile of property investor in Scotland is due to a number of triggers, according to JLL, including the political uncertainty, an issue which was raised at last week’s annual conference of the Scottish Property Federation.

“There is no wholesale selling but funds are reticent to be over exposed to Scotland in terms of their overall portfolio weightings,” says the research.

Global movement of Capital – influences such as political instability in the Middle East, Russian economic crisis and Asian market jitters are all adding to the flow of capital coming from these regions/countries trying to find more stable markets such as the UK.

London has become increasingly expensive – hence the larger regional markets in the UK including Edinburgh and Glasgow have looked like offering reasonable value.  This is particularly so for more mature/sophisticated investors (e.g. North American Private Equity and German Institutions) who are very au-fait with the regional markets.

Chris Macfarlane, director in capital market, said: “As the depth of fund buyer has thinned, pricing has softened and our key markets are looking like fair value.  The vacuum left has been filled by a range of investors (particularly overseas) which is positive.

“Looking forward, we see the following themes:

·       Until there is more clarity on the political landscape, the UK Institutions will continue to be cautious on Scotland.  Politicians – please take note, creating an environment of uncertainty does not help the commercial property market.

·       Overseas private equity and high net worth investors will continue to be prevalent in the Scottish market.

·       Pricing at the prime end will hold firm, sellers of core plus and secondary product will need to price attractively to create any competitive tension.

·       Investment agents will be busy trying to re-invent their client base (including chasing some of the more exotic money).”

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