Scotland’s property investment market resilient but pricing caution 'remains in the air'

Scotland’s property investment market is showing “signs of resilience” after a robust start to 2023 with experts hopeful of a further pick-up in activity over the summer.

Releasing its latest statistics, property consultancy Lismore Real Estate Advisors said that despite market headwinds, the first quarter saw a “reasonably encouraging start to 2023”. Transactional volumes amounted to £324 million, just 11 per cent below the five-year average and down 49 per cent on what was an “exceptionally busy” first quarter of 2022. Looking ahead, there are a number of sales being prepped, property experts noted, which is likely to see activity pick-up further in the second quarter, and beyond.

Lismore director Colin Finlayson said: “After a significant write-down in values during quarter four of 2022, the chasm between buyers and sellers had narrowed and it felt like more liquidity was on the horizon. The UK has also been one of the quickest markets globally to re-price, which should ensure it retains its attraction to the international market. The most recent banking events may not increase the chasm but caution on pricing certainly remains in the air.”

One of the key deals of the first quarter was the £36.8m sale of Quay 1 by DWS to Capreon. Lismore said the deal illustrated the “robust appetite” for the Edinburgh office market. Occupiers in this multi-let building include Apple, Bloomberg, Clevermed, the FCA and STV. Other notable transactions included Frasers Group’s £29.5m acquisition of the Overgate shopping centre in Dundee, which is anchored by popular brands such as Next, Primark, and H&M. Additionally, the Lothian Pension Fund purchased Corstorphine Retail Park in Edinburgh from Hunter UK Retail Limited Partnership, while L&G sold Tennent’s distribution warehouse in Cambuslang to a private family trust for £14.2m.

Across the sectors, Lismore said the Scottish logistics market was “finding its level” with best-in-class yields settling between 5.5 and 6 per cent, while the picture in retail continues to be mixed, with retail warehousing having a deeper pool of potential investors than the high street. Pricing within the out-of-town sector remains reasonably robust (5.5 to 6 per cent for prime) with the “very best” high street locations attracting yields of 6.5 per cent-plus.

Prime offices are starting to find their level, the firm added, with renewed interest from some UK funds for the best product. The range is settling at 5.5 to 6 per cent but the secondary market remains “more challenging”, Lismore noted. The “living” sector continues to be the most sought after, in terms of weight of capital, with robust pricing.

Finlayson added: “There remains a significant weight of private equity circling the UK with interest, but until we start to see some more encouraged selling, it feels this group will have to keep their powder dry for a little longer. Similarly, the majority of funds have been taking a ‘wait and see’ approach. However, we have seen a small number of slightly more entrepreneurial investors seeing it as an opportunity to acquire long-term holds at comparatively attractive pricing.”