Investment in Scottish commercial property grew to more than £2.5bn during 2018, outperforming the five-year average of £2.46bn.
Investment levels were boosted by the offices market in Glasgow as well as growing spending from UK funds, according to the latest figures from Knight Frank.
UK funds increased investment by 58% to £771m in 2018, up 255% from a low of £217m in 2016.
Overseas investors were the most prolific purchasers in Scotland, accounting for £920m (36.8%) of total investment.
Retail investment dropped from £665m in 2017 to £550m last year, mirroring trends seen across the rest of the UK.
Around £1bn was spent on offices across Scotland, with Glasgow, Edinburgh, and Aberdeen taking up the lion’s share (£897m).
Investment in Glasgow offices hit its highest level since 2006, at £468m. This included large deals for the Skypark campus in Finnieston, the forward-funding acquisition of Atlantic Square on the Broomielaw, and Legal & General’s purchase of Atlantic Quay 3 for £50m.
Investors acquired £284m of offices in Edinburgh, down on 2017’s £411m because of a lack of available stock.
The biggest deal of the year was the £71m purchase of New Uberior House by MAS Real Estate. Knight Frank advised the purchaser on the acquisition.
Recovery
The Aberdeen investment market continued its recovery from the oil price drop with £145m of investment. However, this was predominantly made up by the £114m deal for Aker Campus at Dyce.
Alasdair Steele, head of Scotland commercial at Knight Frank, said: “The demand for Scottish commercial property has seen prime yields edge towards 4.5%; but Edinburgh and Glasgow, in particular, still offer good value compared with London and some of the UK’s other major cities.
“Compelling supply-demand dynamics mean that Edinburgh is skewed towards landlords, with rental growth expected over the next 12 months. Of course, that’s a double-edged sword and more quality commercial space will be needed to accommodate the new, growing businesses which will ultimately drive economic growth in the city.
“Edinburgh’s lower levels of investment last year are a reflection of where it is in the development cycle after several strong years – quite simply, there was a lack of stock available to purchase, despite strong levels of buyer interest. However, we are aware of several significant assets being lined up for sale this year.”
John Rae, capital markets partner and head of office at Knight Frank’s Glasgow division, said: “Many of the biggest deals in the city involved overseas buyers, who have become the main drivers of transactions for prime office assets in the city; we would anticipate that remaining the case for the year ahead.
“With so little new stock coming on to the market over the next 12 months, we are anticipating rental growth in Glasgow – which is good news for investors. However, like Edinburgh, it’s becoming a difficult market for investors to get into, with yields hardening and a great deal of competition for the best available assets.”
Investment in Scottish commercial property grew to more than £2.5bn during 2018, outperforming the five-year average of £2.46bn.
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