Commercial property investment plunges over summer but brighter times may lie ahead

Investment into Scottish commercial property nosedived during the third quarter amid economic uncertainty, though sentiment is expected to improve going into the new year.

Releasing its latest Scotland Snapshot, property adviser Colliers pointed to a “significant slowdown” over the summer months, with just £200 million transacted between the start of July and the end of September. It noted that at the half-year mark, Scottish investment volumes reached £1.5 billion, with the £200m transacted in the third quarter taking the total to £1.7bn for the period up until the end of the third quarter. However, this is around 15 per cent ahead of the corresponding 2021 figure.

Cross-border capital accounted for half of all activity by value in the nine-month period, which is above the 2021 average of 42 per cent. PonteGadea Immobiliaria, Heimstaden Bostad and Ares Management were the most acquisitive overseas buyers by value so far this year.

Elliot Cassels, director in the national capital markets team at Colliers Scotland, said: “Investor sentiment cooled at the start of the summer affecting pricing. The fall in sentiment and pricing was far more pronounced following the ‘mini budget’ when gilt and debt rates rose significantly. Whilst some investors pulled out of deals, there are still some under offer that are being renegotiated.

Investment into Scottish commercial property saw a significant slowdown in the third quarter of 2022, according to Colliers, which also noted that cross-border capital accounted for half of all activity by value in the year-to-date. Picture: Jon Savage

“There is no doubt that pricing has moved out, but we have seen little evidence being created. We expect sentiment to improve and more transactions to take place when there is more certainty in the debt market.”

The retail sector saw a total of £70m invested in the third quarter, driven by the acquisition of Glasgow’s West End Retail Park and Cumbernauld Retail Park for £34.5m and £24.5m respectively. The industrial sector experienced a quiet quarter with just over £20m transacted across three deals.

Oliver Kolodseike, research director at Colliers, said: “Scotland isn’t immune to the wider economic challenges that are sweeping the UK and, as such, we are seeing the Scottish commercial property market in the middle of a re-pricing. By the end of the year, we expect to see significant outward shifts in yields across the board, particularly if the low volumes traded in Q3 are anything to go by.”