Offices lead the way
Scottish real estate on course for record inward investment
Koreans bought the Leonardo Innovation hub in Edinburgh
Scotland has attracted £575 million of international capital in the first half of 2019 which is on track to become the best ever recorded year for inward investment for commercial real estate.
Almost half (49%) was made by international investors, representing the largest share of inward investment since 2016.
Asian investors accounted for the largest proportion, investing £240m and surpassing the £180m invested in the whole of 2018. South Koreans invested more than £200m and invested in some of the largest deals in Scotland. Leonardo Innovation Hub was sold to Korean investors for £100m with a 5.9% yield.
European investors continue to invest heavily into Scottish commercial real estate with almost £200m invested and offices most in demand. The largest deal this year was to German investors who bought 4-8 St Andrew Square, Edinburgh, for £120m, representing a yield of 4.45%.
Nick Penny, head of Savills Scotland which conducted the research, said: “2019 is shaping up to be a record year for inward investment into Scotland.
“Investors are attracted by the strong performance of the economy, record employment and more attractive yields on offer relative to other regional cities in the south east.”
Mr Penny, who is also a director in the investment team, added: “Recent plans set out by the government to position Scotland as a forward-looking digital nation by embracing 5G has the potential to enhance Scotland’s global competitiveness and continue to drive inward investment.
‘We are already experiencing a growth in the tech sector, particularly in Edinburgh, and with digital becoming more engrained in business processes and procedures, having a fast and reliable digital infrastructure will become increasingly vital for businesses.”
Offices leading the way
Offices proved to be the most popular sector in the first half of the year with £494m transacted. Overseas investors accounting for over three quarters (79%) of investment. The second quarter was particularly active with more than £400m of deals completing, four times the amount completed in the first quarter, and 93% going to international investors.
Overall, Edinburgh witnessed the highest level of investment within Scotland with £316m worth of investment taking place across six deals, compared with five in H1 2018.
Glasgow and Aberdeen achieved £128m and £50m of office investment respectively. Key deals during H1 included 110 St Vincent Street, Glasgow, which Savills sold for £48m reflecting a 5.4% yield and AB1 on Huntly Street, Aberdeen which was purchased for £13.5m with an 8% yield.
Mr Penny said: “The fundamentals of the office market remain strong. Edinburgh is proving particularly popular due to the combination of a robust occupational market and restricted supply of high quality office space which has led to rental growth in the city. This environment is creating significant demand for office buildings with international investors that want to secure long-term income at attractive yields.”
Opportunities in retail
Momentum continues into Q3 with Franklin Real Assets Advisors’ acquisition of Cameron Toll shopping centre last month for £38m on behalf of its international value-add clients.
Assets on the market that are expected to generate significant attention from overseas buyers include The Gyle shopping centre in Edinburgh, which sits on a 50 acre site with potential to expand, is on the market via Savills for £125m, and Hermiston Gait Retail Park, which is currently being marketed for offers over £75m.
The Gyle shopping Centre is for sale
Mark Garmon-Jones, head of retail investment at Savills, comments: “This year we have seen a real flurry of activity in Scotland as its fundamentals remain strong.
“Edinburgh in particular is an attractive proposition with its capital city status, large student and residential population which underpins, alongside tourist spend, the city’s retail performance.
“The capital’s shopping centres such as The Gyle offer overseas investors an opportunity to acquire a substantial asset with a solid catchment area that offers significant expansion and development prospects.”