Q1 surge

Positive start to year for commercial property deals

Union Square
Union Square Aberdeen was among the quarter’s big deals

Scotland’s commercial property market is showing promising signs of recovery
according to the latest figures from Lismore Real Estate Advisors.

Transaction in the first quarter totalled £431 million, up 33% from Q1 2023, indicating a
positive start to the year.

Pricing is showing signs of stabilisation, with some sectors experiencing upward pressure. Logistics and multi-let sheds remain strong, with prime yields expected to slightly harden.

The rate of progress will be seen as particularly encouraging ahead of expected interest rate cuts later this year.

Notable transactions in Q1 included Lone Star’s acquisition of Union Square in Aberdeen for £111m, DS Properties’ purchase of BP’s North Sea HQ for £16m, ICG’s acquisition of the Tesco store in Corstorphine for £43.9m, and an overseas private family office’s acquisition of Omni in Edinburgh for £64m.

Associate, Chris Thornton said: “Key themes are emerging in various sectors, with logistics and multi-let sheds continuing to lead the way, with strong demand and limited supply driving genuine rental growth and underwriting investment rationale.

“There are early signs of an increase in fund activity focusing on the prime retail, retail warehousing, hotel, and industrial sectors. Corporate mergers and acquisitions are increasing, leading to motivated sellers and portfolio realignments.

Omni Centre
New owner: Omni Centre (photo by Terry Murden)

Notably, Aberdeen is experiencing improved liquidity, with a significant uptick in office and industrial volumes attracting yield-hungry buyers.

“Strong rental growth forecasts are driving interest from private investors in the drive thru’s sector, while private equity firms are starting to sense some real value leading to a number of high-profile acquisitions.”

Research from Knight Frank also shows a rebound in the first quarter. According to its calculations total investment volumes rose by 53% on the same period last year, increasing from £251m to £383m.

Retail property accounted for 56% of investment volumes, largely because of the sale of Union Square. Hotels accounted for another 17% and offices represented another 15%.

Listed property companies have accounted for 43% of investment, with international investors at 30% – well below their five-year average of 57% – and private capital representing 27%.

Edinburgh market

The lack of available prime Grade A office accommodation in Edinburgh is driving an uplift in rents for quality space across the market, according to property consultancy Cushman & Wakefield.

The market delivered solid take-up in Q1 2024 totalling 209,000 sq ft. The letting of 103,000 sq ft at 1 Lochside View in West Edinburgh to workspace provider Edinburgh Palette accounted for nearly half of all take-up.

Key prime office deals included the pre-letting of 14,680 sq ft on the fifth and sixth floors at 30 Semple Street by Hymans Robertson and GE Vernova, acquiring 9,464 sq ft at 1 New Park Square, Edinburgh Park. 1 New Park Square is now 65% let following three further deals in 2023.

1 New Park Square
1 New Park Square t Edinburgh Park is now 65% let

Supply continues to be a real challenge, with 24 St Andrew Square (48,000 sq ft) and 30 Semple Street (57,000 sq ft) the only prime Grade A office schemes currently onsite.

The lack of quality stock coupled with strong tenant demand has seen prime headline rents in the city centre increase to £45.00 per sq ft (12.5% year on year growth) with prime rents in the non-city centre market increasing to £30.00 per sq ft (20% year on year growth).

A challenging office development landscape and the underlying alternative use value for buildings in Edinburgh has led to potential development stock being removed from the pipeline, exacerbating the constrained supply position.

Edinburgh One at 60 Morrison Street was earmarked for 85,000 sq ft of prime Grade A offices, however, it was recently purchased by McAleer & Rushe for hotel redevelopment. This follows the 2023 purchases of existing significant office buildings at 28 St Andrew Square (by Dalata Group) and 9-10 St Andrew Square (by Tristan Capital Partners), with the intention of conversion to hotel use.

Edinburgh One
Edinburgh One has been acquired for a hotel development

Demand levels remain very strong in the market with 97 occupier requirements totalling 1.06 million sq ft. This includes 306,000 sq ft of new requirements since the beginning of 2024.

Commenting on these figures Adam Watt, Associate Director at Cushman & Wakefield said: “We continue to see a competitive landscape in the Edinburgh office market as occupiers vie for the
best available space for their talent.

“The office remains central to many businesses as a hub for collaboration and interaction and with limited prime Grade A options available and a constrained development pipeline, occupiers are having to enter the market well in advance of their lease expiry date.

“Pre-lets will be required to deliver the development stock not currently onsite, so early engagement from occupiers with landlords is critical in unlocking these opportunities.”



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