Thursday 18 September 2014 was supposed to be a watershed. One way or another, Scotland would have made a decision – to stay in the Union or to leave it. Like everybody else, property investors hoped for some clarity and by now, two months later, they expected to have it.
Yet, according to many in the Scottish property market, that is not how it turned out. The referendum campaign dramatically slowed the pace of investment in Scottish property and today, two months later, the flow of money is still not quite back to normal. According to one estimate, £150m-plus of sales in the office market remain shelved or postponed. The figure could be higher in other sectors.
Opinions differ about the damage the referendum did – or is still doing – to investment in Scottish property.
David Davidson, managing partner for Scotland at Cushman & Wakefield, says that the Scottish investment scene’s handbrake is now off and the engine running once again.
“We were driving with the handbrake on until 18 September. There was a perception the market had slowed or stopped, although it held up remarkably well given the uncertainty,” he says.
“There were a number of people who put all their deals on hold before the referendum – Land Securities was one – but there were still sufficient active people in the market to counteract that.”
LandSec declined to comment but the announcement that it bought out TIAA Henderson Real Estate’s 50% stake in Glasgow’s Buchanan Galleries for £137.5m was timed for 7 October, 20 days after the referendum result.
Agents say that while Livingston’s 850,000 sq ft The Centre went onto the market during the campaign, LandSec firmed up a £200m sale only once the result was known. Orion Capital and AEW Europe are understood to have been in the frame.
C&W figures suggest that transactions worth £460m were completed in the third quarter up to 18 September, appreciably more than the £339m recorded in Q2. Total volume in Q3 was £698m. It would be hard to call this a dormant market, Davidson suggests.
“We completed another £238m of deals in the two weeks following the referendum, and if you add that up it means we’re 17% up on the third quarter of last year,” he says.
Not everyone is so upbeat. Nick Penny, director at Savills in Edinburgh, says: “There was a sharp slowdown. From March things slowed considerably. October was more positive – we’ve seen a few deals that were hanging on a no vote. But while the rest of the UK regional markets have moved on – and we’ve seen eye-watering yields in Manchester – Scotland hasn’t.”
He adds: “Things have improved but we’re not rocketing along. Investment agents may not be twiddling their thumbs, but many of us expected it to be busier. We’re not trading at Manchester levels.”
Colliers International has been advising LandSec on Livingston, so ought to feel fairly chipper. Director Tom Fulton remains tight-lipped on The Centre’s sale, but is happy to speak about the slow recovery – if it is a recovery.
“I’m not sure the brakes are off. There are transactions taking place but I’m aware of eight or nine office sales that have been held back for one reason or another. The investors wanted to step back, or wait and see what happens, or perhaps they feared a glut of properties coming to the market and don’t want to compete head to head,“ he says.
Fulton – like Penny – points to the contrast with English regional powerhouses like Manchester. “We’re still performing slower than other UK cities,” he says.
In the meantime, vendors are getting accustomed to the new mood. F&C REIT is seeking £16.5m for 150 St Vincent Street in Glasgow, a net initial yield of 7.37%. A spokesman says that, contrary to rumour, the referendum did not play a big part in timing. “They looked at it earlier this year, but now was the right time to sell,” he told Estates Gazette.
In Edinburgh, Scottish Widows is offering its 270,000 sq ft Port Hamilton office complex with a £95m-plus price tag, a net initial yield of 5.6%. This sale-and-leaseback is, it says, part of long-standing plans to rebalance its portfolio. Aberdeen Asset Management, JLL and CBRE are advising.
Further north, the 67,000 sq ft Wick Retail Park is attracting interest on the back of an £8.6m asking price, a net initial yield of 7.5%. Montagu Evans is advising.
“Sales like these were hanging on a no vote,” says Savills’ Penny.
Yet the old song of Scottish politics is not over yet. There are still plenty more choruses to come – not least the Smith Commission’s report (see box). For now, though, both vendors and buyers are taking advantage of a pause for breath and the pace of pre-Christmas deal making is toe-tappingly fast.
Unfinished business
Lord Smith of Kelvin, chief organiser of Glasgow’s 2014 Commonwealth Games, chairs an all-party commission to work out the details of so-called “devo-max” promised to Scotland as a condition of voting no to independence.
A white paper outlining the details is due out next week.
David Davidson, managing partner for Scotland at Cushman & Wakefield, says: “The Smith Commission is very important. If he can get agreement
then business will carry on smoothly. But the risk is that there is no agreement, backtracking by the UK political parties, and that will worry investors. The fear is that in those circumstances the SNP will be shoved by its more aggressive members to push again for independence.”
