Scotland’s commercial property market grew last year as demand for office space reached a 12-year high, according to the latest figures from Colliers International.
The commercial property specialist recorded £2.54 billion worth of investment across Scotland in 2018, up fractionally from 2.5bn in 2017 and comfortably above the ten-year average of £1.9bn.
With only a single shopping centre deal recorded over the year, the retail sector saw transaction levels fall by 16% to £560 million. But the highly sought-after office sector more than made up the shortfall, attracting over £1bn worth of capital in its busiest year since 2006.
Douglas McPhail, head of Colliers’ Glasgow office, said: “With transaction totalling £1.02bn in 2018, the Scottish office market was the most sought after sector for the second year running. At £1.02bn, investment volumes were up more than 20% from 2017 and the highest since 2006. Investors mainly targeted Edinburgh and Glasgow, which together made up nearly 70% of all investment.”
McPhail said foreign cash continued to be an important source of capital and accounted for almost 50% of all transaction volumes in the office sector. American real estate investment firm LCN Capital Partners’ purchase of Aberdeen International Business Park for £113m at was the largest deal in 2018, followed by Legal & General’s acquisition of Glasgow’s Atlantic Square for £100m.
The 2018 figures confirm recent comments from Patrick Ford, head of Colliers International’s growing Capital Markets team in Scotland, who said office demand in Glasgow in particular is growing strongly and voiced concern that the current political uncertainty is holding back investors and developers. That could mean that instead of enjoying a construction boom to go with the service sector interest, the city is simply left with a shortfall in high quality office supply.
Colliers warned that Scotland’s economic outlook remains uncertain and depends heavily on Brexit negotiations. Current GDP growth forecasts for 2019 range from 1.0% to 1.4%. But it said investment in commercial property should top £2bn for the sixth year running in 2019.
Industrial property transaction volumes reached £271m in 2018, down from £346m in 2017, but above the 10-year average of £206m for the second year in a row. Commercial property outside of the three main areas of retail, office and industrial continued to grow in importance: there were 22 hotel deals in 2018, totalling £282m; and seven student accommodation investments worth £135m. Investors are attracted to the Edinburgh student residence market by steady yields of around 6%.