Foreign investment drives rise in real estate deals
Neptune Energy building sold for undisclosed sum
Overseas investors significantly contributed to a sharp rise in investment in Scottish commercial property in the first half, according to analysis from Knight Frank.
There was a 35% surge in deals to £688 million in the six months to the end of June, against £510m in the same period of 2020 – the height of the UK’s first lockdown.
Overseas investors have remained the biggest buyers of Scottish commercial property so far in 2021, making acquisitions totalling more than £300m.
Privately held property companies were involved in £115m of deals, while UK institutions accounted for another £60m.
According to Knight Frank, investment fell 15% between the first and second quarters of 2021, from £371m to £317m.
However, this does not include deals with undisclosed values, such as the sale of Neptune Energy’s Aberdeen headquarters in May – the biggest investment deal in the city since the pandemic began.
Colliers’ Scotland’s snapshot for the second quarter of 2021 puts second quarter deals higher than the first – at more than £400m – though it says investment was about 20% below the five-year quarterly average of £528m, as the effects of the Covid-19 continue to be felt.
It says investment volumes over the first half were up by more than 50% on the same time in 2020.
Rockstar Games has acquired its Holyrood Road HQ (pic: Terry Murden)
Colliers says the four largest office deals in the second quarter were all recorded in Edinburgh, led by Rockstar Games buying its 75,000 sq ft building on Holyrood Road – the former headquarters of The Scotsman newspaper – for £31m, and the adjoining Holyrood Park House, home to Citigroup, for £17m.
Knight Frank lists alternatives and mixed-use schemes as the most popular asset classes in terms of investment volumes – including the £80m of funding for Moda’s Holland Park build-to-rent development in Glasgow – followed by offices and industrials.
Both agencies predict that, with a range of high-quality stock still being marketed, a flurry of deals could complete after the summer.
Alasdair Steele, head of Scotland commercial at Knight Frank, said: “Scotland’s commercial property investment market is still recovering from the effects of the pandemic, but there are signs we are heading in the right direction as the economy re-opens.
Oliver Kolodseike, Deputy UK Chief Economist, Research and Forecasting, at Colliers, said: “There is pent-up capital waiting to be deployed in Scotland. A number of deals are currently under offer and should complete in the coming weeks and months.
“We expect a further boost with remaining restrictions due to be eased in Scotland on 9 August and we should return to some form of normality.”
In the office market, Colliers expects a strong rebound in the second half of the year as lockdown restrictions ease further. In one of the largest leasing deals of the second quarter, BT signed a pre-let for 80,000 sq ft at Dundee’s West Marketgait scheme.
Elliot Cassels, director, national capital markets in Edinburgh, added: “There has been strong investor demand for Edinburgh offices, with keen prices having been paid. Footfall in city centres still remains low and investor appetite thin for high street retail and leisure.”
In the retail sector, which has been hard hit by the fallout from Covid, around £60m was invested in the second quarter.
Although this was double the first-quarter figure, it is less than half the five-year average of £130m. The largest retail deal was the sale of a B&Q warehouse in East Kilbride to an American real estate investment trust for £19m.
The industrial sector saw £70m invested in the second quarter, against £52m in Q1, and about 10% above the five-year quarterly average of £62m. The largest deal was DataVita’s acquisition of the Fortis data centre at Strathclyde Business Park for £45m.