Hopes for upturn
KanAm closes £31m deal as market awaits ‘northshoring’
Edinburgh House: German buyer
Real estate managers in Scotland are expecting a continued trend for “northshoring” to help the moribund market as companies leave high cost areas for Scotland.
The move may help kickstart the sector which has seen only one big deal completed in the last few weeks.
German real estate fund manager KanAm is understood to have signed off on a £31 million deal to acquire a newly-redeveloped block in central Edinburgh.
Knight Property Group is offloading Edinburgh House at 4 North St Andrew Street occupied by Computershare at a net initial yield of 4.33%. It speculatively redeveloped and pre-let the building on a 20-year lease.
Aside from the KanAm deal, preliminary data for April suggests that the market came to a complete standstill at the start of Q2.
A number of assets are currently under offer, including the forward funding of an Amazon distribution facility at Glasgow Business Park, as well as high profile office and hotel asset in Edinburgh totalling circa £140m. These are being sold separately off-market which, if they complete, will help the overall figure.
According to Colliers International’s Q1 Scotland snapshot, investment volumes in Scotland reached £420m in Q1 2020 against the £414m transacted in Q4 2019, and by around 40% on the same period a year ago.
Transactional volumes remained below the five-year quarterly average of £581m. The sale of the Springside PRS scheme in Edinburgh accounted for half of all activity by value (£215m).
Offices and industrial recorded only limited activity during the first quarter, while the sale of two larger retail warehouses helped retail investment volumes to recover from a weak Q4 2019. Overseas investors remained an importance source of capital and accounted for two thirds of all activity. UK institutions were absent from the market in Q1 2020 for the first time since the EU referendum in 2016 and for only the third time on record.
Patrick Ford, director, National Capital Markets, Colliers International in Glasgow, said: “The weight of global capital has been on an upward trajectory over the past decade and although the COVID-19 impact will depress the total volume invested in 2020, we expect there to a significant upturn in activity when the UK get back to some normality.”
“While it is too early to tell, it will interesting to see how office occupiers will react and what impact there will be in the regional office markets. We believe the trend of northshoring will continue, as there is not the same challenges with managing large scale densely populated commuting, after lockdown.
“Looking at who is going to be selling, it’s not like the global financial crisis, as there’s currently no distress in the market, although that could change.
“At the moment, we don’t see breaches of covenants and fire sales, or banks taking control. A big challenge is in how long it will take for the aspirations of buyer and sellers to match.”
With social distancing in place it is hard to see how co-working and hot-desking will work– Elliot Cassels, Colliers
Elliot Cassels, director, National Capital Markets, in the Edinburgh office, said: “For some, working at home or at least flexible working will be more commonplace but conversely there will be many employees’ and employers keen to be back in the office.
“However, with social distancing in place it is hard to see how co-working and hot-desking will work, until there is a vaccine available. Occupiers of such space may look for more traditional office space, resulting in increased demand.”
He added: “Also with more space required to achieve social distancing, those firms who are keen to see their employees back in the office they too may look to take additional space or re-occupy grey space.”
It was a relatively quiet quarter for the industrial sector in terms of investment activity with only three deals recorded and volumes were down to £5m from £80m at the end of 2019.
However, assuming the country gets back to some semblance of normality relatively quickly, Mr Cassels still expects good investor demand for industrial. Investors, though, will be looking at the rent payment collection from tenants.
He says this will be true of all sectors and is why the retail and leisure sectors will be worst affected in terms of investor demand and values, with some exceptions, including supermarkets.