Low pound affects decisions
Edinburgh office market sees surge in overseas buyers
Overseas investors are pouring more money into the Edinburgh office market as buyers take advantage of a low pound and avoid high prices in London.
More than 90% of deals were funded through international investment, according to research from property firm JLL.
However, domestic funds are going “Scotland-light”, easing off their commitment as they fret about the political uncertainty.
Overseas investment rose against an overall fall. While the capital’s total office investment volumes dipped from nearly £400m in 2015 to £355m in 2016, the percentage of overseas buyers increased from 62% to 93%.
The data is likely to ramp up demands on politicians to maintain a low tax regime in Scotland to ensure interest from overseas investors is maintained. Low taxes are a key factor in property investment decisions.
Overseas investment in Edinburgh has been growing steadily in recent years according to JLL. Up to 2014 it was split evenly between domestic and foreign money.
According to Chris Macfarlane, lead director in capital markets at JLL Scotland, the changing profile of property investor in Edinburgh is due to a number of factors.
“We expect to continue seeing overseas buyers outstripping domestic funds,” he said.
“However, the proportion of overseas investment recorded in 2016 could be the highest on record for quite some time given the unique cocktail of triggers which impacted on the market in 2016.”
UK Institutional caution
“Setting aside a general easing in weight of money, the continuing uncertain political landscape is causing UK institutional funds to go “Scotland-light”. There is no wholesale selling but funds are reticent to be over exposed to Scotland in terms of their overall portfolio weightings.”
“In comparison to some of the UK’s other strong regional markets such as Manchester and Birmingham, pricing has been discounted in Scotland typically between 25 – 50 basis points, a trend not lost on those canny investors trying to find some extra margin of value.”
Global movement of Capital
“Influences such as political instability in the Middle East, Russian posturing and the prospect of President-Elect Trump 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 better 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.”
Impact of Brexit
“The immediate impact of the referendum outcome, resulting in the devaluation of Sterling, has generally made the UK look like better value, as those investors trading in the Euro / Dollar see a positive currency play.
“However, with so much uncertainty on the horizon, the natural investor reaction is a flight to prime and the stronger markets.
“Edinburgh, in particular, as a European capital city with a broad occupier base, a growing workforce and very strong tourist spend is being perceived by investors as an attractive long term bet, whatever shape Europe might take in the future.”