Increased international interest in the Glasgow property market could make 2017 the Scottish city’s best year for investment a decade.
According to Savills, £910m of assets have traded in the year-to-date, and with a further £770m of assets under offer, this year could outweigh Glasgow’s 10-year annual average of commercial investment, which is £1.7bn (see graph).
Activity in the market has been led by a hike in international investment and off-market deals. Last week, Spanish billionaire and Zara owner Amancio Ortega placed the city’s Apple store under offer for £48m – more than £7m above the asking price.
Ortega was at the front of a pack that included at least 10 other international investors vying for the prime mixed-use asset on Buchanan Street and St Vincent Street, including European fund manager Aerium.
“This means that there is, in theory, around £450m of capital ready to be invested into the Glasgow market,” says Stuart Orr, director UK investment, Savills Glasgow.
Luckily for those investors there are still plenty of opportunities – around £125m worth of assets are currently available. Most recently, Lone Star hoisted a for sale sign over the Skypark business park for £80m.
Why now?
A combination of the independence referendum being put on the backburner, a lack of stock and competitive pricing has prompted this surge in activity.
Chris Macfarlane, director, capital markets, JLL Scotland, says: “Overseas investor interest in Scotland has continued to increase, partly due to a combination of a lack of UK fund appetite and weak sterling.
“Ultimately, however, it really shows the weight of global capital currently looking for a home and highlights that globalisation has truly arrived in the Scottish market.
“Glasgow has been a major beneficiary of this interest, strengthening its investor appeal.”
Around 75% of the deals that have gone through this year have also been off-market, demonstrating the increasing demand for global capital looking for a home in Scotland (see table).
“This suggests a build-up of determined capital targeting Scotland, with investors prepared to go that extra mile to find a home for it, rather than wait for the right product to simply come to market,” adds Orr.
Retail
Strong occupier demand and rising rents have made retail assets a popular choice. Buchanan Street, known as one of the best retail destinations in the UK outside London, has seen some of the fastest-growing retail rents in the UK.
According to Savills, Zone A rents here have risen by 20% in the past nine months to £320 per sq ft and yields have hardened to around 4.3%.
Chris Daniel, of asset manager Quadrant Estates, says: “We are keen on Glasgow as a location for retail investment. It is a significant city in its own right and while it has been overlooked in recent times for understandable reasons owing to the threat of independence, evidence suggests that it is now firmly in global investors’ sights.”
Office
Office investment has represented 38% of all Scottish property transactions in Glasgow this year.
Most recently Wirefox bought City Park, formerly the WD and HO Wills tobacco factory, on the edge of Glasgow city centre for £41m.
Chris Dougray, director at agent Dougray Smith, said: “Given there are no speculative office developments under way in Glasgow, investors are, rightly in our view, predicting rental growth.
“Where investments are sensibly priced there is a decent depth to buyer interest, but what is very interesting is the lack of indigenous equity seeking these investments.
“There is real diversity in the buyer types and their source of money. The exception to this is secure long income streams, where the UK funds and one or two other syndicated equity funds are aggressively seeking to acquire. We do not see this changing in the foreseeable future.”
Historically, the Glaswegian office market has relied on this speculative development, but demand from occupiers is still up despite this slowdown. The next Grade A office building under development will not complete until 2021 at the earliest.
Glasgow has the lowest Grade A office rents out of the big six cities at around £30 per sq ft and, according to Savills, supply is less than 18 months of the 10-year average take-up.
Industrial
The industrial market is similarly attracting interest from restricted supply.
Stock has been gradually removed from the market over the past 10 years through CPOs and a lack of development has resulted in a stock shortage. This has caught investors’ attention.
Orr says: “We have seen the removal of stock over the past 10 years and significant road network improvements, which is reducing the drive time in and around industrial sites, so there is a weight of investor capital looking at these estates around the city.”
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