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Cautious optimism

Office deals hit five-year high despite home working

Aegon office at Gyle Edinburgh

Aegon’s building in Edinburgh was acquired by Koreans (pic: Terry Murden)

Scotland enjoyed its best third quarter for office deals in five years in spite of concerns that the drift towards home working would drive investors away.

As the economy re-opened from lockdown, investment in offices hit £218 million in the three months, against an average of £116 million for the same period in the past half-decade, according to analysis by Knight Frank.

The market as a whole saw £400m of investment – just shy of the Q3 five-year average of £405m.

Colliers International calculations put the investment figure in the quarter even higher at £477m from a low of £35m in the previous quarter.

The biggest deal in the quarter was Roebuck Asset Management and Hyundai Asset Management’s £133m acquisition of Aegon’s Edinburgh headquarters during July.

There were several significant deals in Glasgow, including Singapore-based Elite Partners Capital’s purchase of 150 Broomielaw for around £40m while the Guildhall building on Queen Street changed hands for around £30m.

The third quarter also saw the completion of Scotland’s biggest-ever logistics property deal, with the acquisition of Amazon’s main Scottish fulfilment centre near Dunfermline by Knight Frank Investment Management, on behalf of a Korean investor.

Euan Kelly, capital markets partner at Knight Frank, said: “The deals that concluded in Q3 underline the trends we’ve seen take hold over the course of 2020 – a flight to quality assets in prime locations, let to strong covenants.

The sale of the Amazon fulfilment centre in Dunfermline also highlights the growing appetite for industrial and logistics property that has emerged since the beginning of the Covid-19 pandemic.


“We are still in a continually evolving situation, but there are reasons for cautious optimism.

“In a world where there is little in the way of certainty, investors have an insatiable appetite for secure, long-term sources of income – and quality commercial property is in a great position to provide that.”

Colliers International says volumes in Q3 represented the highest quarterly figure in a year. While this was still almost 20% below the five-year quarterly average of £564m, Colliers said there is hope for a strong end to the year with pent-up demand driving activity.

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Oliver Kolodseike, associate director, Research and Forecasting, at Colliers International, said: “It is positive to see that transactional volumes have started to pick up again and we are now expecting a strong end to the year in Scotland as we recover from the ‘COVID quarter’.

“An annual investment total of £1.5 billion across all sectors would be a positive result given the nationwide lockdown earlier in the year.”

Colliers’ analysis found that the office and alternative sectors accounted for three quarters of all activity by value, while investment volumes in the industrial sector were 40% above its five-year quarterly average. Unsurprisingly, given the ongoing impact of the pandemic, activity in the retail segment was limited. 

It notes the renewed interest in Scotland from Asia-Pac investors, accounting for over half of all investment volumes. Hyundai Asset Management’s purchase of the Aegon building is Korean company’s second Edinburgh purchase in less than 18 months, having already bought Gyle Square in April 2019 for £55m.

Industrial investment activity picked up during Q3, with volumes reaching £80m, 40% above the five-year quarterly average of £56m.

The figure was boosted significantly by the sale of Amazon’s 1,023,000 sq ft logistics centre to Korean-based KB Securities for £66.8m, representing the second-largest industrial deal ever recorded in Scotland.

Candleriggs Square

Candelriggs in Glasgow was largest residential deal

Patrick Ford, director of national capital markets at Colliers International in Glasgow, said: “It was good to see this relatively strong investment performance in the industrial sector in Scotland’s two biggest cities in Q3.

“Overseas investors, particularly those located in Asia, remain very interested in the Scottish industrial sector and large deals continue to be done, despite global economic uncertainty on the back of COVID.”

In Glasgow, the move to bring more residential properties back to the city centre continued. The third quarter’s largest deal saw Legal & General UK BTR forward funding an £81.5m mixed-use regeneration scheme in Candleriggs Square which will include 364 build-to-rent units. 

Patrick Ford added: “There is a push towards a more mixed-use environment in city centres, particularly in Glasgow and this is reflected in the scale of investment in the city in Q3.

“This trend will be accelerated by the impact of COVID which is likely to see people work from home, at least part of the week, for the long term. This will change the nature of the office environment and the make-up of city centres.”

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