Ryden Publishes Latest Scottish Propery Review
30 April 2009
Ryden has just published the latest edition of its highly respected Scottish Property Review. The publication is recognised as a barometer of the wider Scottish economy as well as the most in-depth and longest running study of the Scottish property market.
Commenting on the findings in the 64th Review, Dr Mark Robertson, editor of the publication said “The slowdown across Scotland’s property markets has synchronised as the country’s economy has entered recession. Occupier markets are achieving some levels of activity, but development market paralysis continues. While the investment market looks close to the bottom of its cycle, purchasers remain risk-averse and highly selective.”
Economy
Muted economic growth in 2008 is now reversing into a sharp recession. Forecasts for 2009 and 2010 reflect ongoing concerns about the ripple effects of the 21-month old credit crunch into the wider economy.
Office
Scotland’s city office markets are experiencing a market downturn. Take-up of offices has decreased, supply has increased and enhanced occupier incentives are required to sustain prime headline rents. In Glasgow total availability of office space has increased by 23% reflecting both a slowdown in sales and lettings, and new developments due to complete in the next six months. In Edinburgh, over the last 12 month period, take-up is 30% below the ten year average, comparable to the trend in Glasgow. In comparison, Aberdeen has had a buoyant office market in the past six months, although this is beginning to slow down with the drop in oil prices dampening demand.
Industrial
While the recession is undoubtedly affecting business confidence, the Scottish industrial market remains active with a good flow of transactions and some development activity. Take-up has however declined and it is anticipated that there will be an increased rate of company failure in the second half of the year which could put pressure on rents and overall terms. In the West of Scotland the low supply of available industrial property is helping to shore up the market. In East Central Scotland there is a clear slowing of industrial occupier activity, however, in common with the West, there remains a good volume of transactions at the smaller end of the market. In Aberdeen there has been a 155% increase in industrial take-up compared with the previous six months.
Retail
Despite many retailers continuing their price discounting, it appears that there has been a significant drop in sales volume across the retail sector. Food operators remain the most active in the current market. This is a typical recessionary pattern. New store/site requirements for Scotland are being circulated by Morrisons, Aldi, Lidl and Waitrose. There is a wide spectrum of underlying market conditions, from Paisley where short term lettings indicate a very weak market and downward pressure on rents, to George Street, Edinburgh and Buchanan Street, Glasgow where latent rental growth potential is evident in current market activity.
Investment
Scottish commercial property recorded a total return of -21.9% in 2008 (UK: - 22.1%) according to the IPD Annual Index. Although values show signs of stabilising in respect of well-let prime assets, further value falls are anticipated in certain sectors as investors prioritise quality and sustainability of income. With the prospect of an investment property demand/supply imbalance, better credit conditions and improved investor sentiment, there is a possibility of a relatively quick return to asset price inflation. There is thus cause for some optimism that the investment market may start its recovery during the course of 2010, but driven by capital appreciation as rental values may generally be flat or falling.
