Sentiment improving

Investors showing renewed appetite for real estate

Silverburn
Silverburn shopping centre was among last year’s big deals

Investors are ready to unleash a wall of cash into the commercial property market as economic pressures begin to ease, according to consultant.

Deal flow slumped in the second half of last year as the war in Ukraine and the financial turmoil caused by the Truss mini-budget led investors to press the pause button.

Indications that inflation has peaked and interest rates may stabilise are stoking interest among those sitting on huge cash balances.

Stuart Orr, investment director at Savills in Glasgow, says: “The overarching approach of investors in Scotland at the beginning of this year remains ‘wait and see’.

“Investors need more certainty in the economic outlook to be confident in their ability to underwrite new deals, albeit the shocks to the market that followed the mini-budget are easing.

“With an expectation that inflation has peaked, and interest rates are likely to stabilise further, sentiment is improving.

“There remains a sizeable amount of capital that investors will be keen to deploy over the course of the year, as holding large cash balances indefinitely is not a viable strategy in this inflationary environment.”

The agency says Scotland’s commercial property sector saw £2.395 billion traded in 2022, marking a 12.6% uplift on the five-year average (£2.127bn).

Its analysis reveals “a year of two halves” with 81%, (£1.93bn) of the total investment activity in Scotland completing before the end of June. The second half was down 310% on the same period in 2021.

Offices, retail warehousing and alternatives were the strongest performers by sector over the course of the year.

Key deals included Pontegadea acquiring 177 Bothwell Street for £215 million (4.5% Net Initial Yield); Realty Income acquiring Great Western Retail Park for £87 million (5.96% NIY) and Eurofund Group & Henderson Park Capital Partners buying Silverburn Shopping Centre for £140 million (9.3% NIY).

See also

Interview: Chris Richardson, head of commercial real estate, Aberdein Considine



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