The political drag on property investment since 2014 has now subsided. While the ongoing Brexit negotiations and the uncertainty that brings will feature for some time, the possibility of a second Scottish Independence referendum in the near future has abated and investor sentiment towards Scotland has improved.
Glasgow and Edinburgh have been the cities to benefit most, with foreign investors at the forefront of activity once again taking advantage of the weak pound. UK Funds have largely remained cautious when considering opportunities.
Prime office property yields remain relatively stable at 5.25% - 5.5% in Edinburgh and Glasgow with Aberdeen's perceived to be in the low 6% territory. Active investors continue to benefit from the virtual absence of UK institutions, albeit there are encouraging signs of selective re-emergence in this sector. Looking forward, there is a reasonable supply of opportunities on the market.
Investor demand for industrial property has continued to increase, particularly over central Scotland with Edinburgh and Glasgow leading the way. Outwith this area, demand remains soild but pricing is lower by comparison. Trading does remain limited though due to a lack of stock, but this is expected to change. Multi-let industrial estates are keenly fought over.
The retail property market continues to present a very mixed picture. On the high street investor activity is focused on well-configured assets in prime pitches within key centres. Demand for retail warehouse assets has remained relatively bouyant while interest in the shopping centre sector has been thin with a number of high profile sales failing to transact.
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The investment market has remained very warm in England throughout 2017 especially in the key regional cities of Birmingham, Manchester and Leeds.
Prime office property yields in Birmingham and Manchester are 4.75% to 5.25% in the hottest market since 2006/7. Both cities are seen by UK institutions and overseas investors as key long term growth markets. Leeds has fewer opportunities but is still popular with yields at 5.5% to 6%. Central London activity has stepped back a little to reflect the Brexit uncertainties with seasoned investors being replaced by new, mainly overseas entrants seeking to gain, in many cases, first time representation whilst the competition is thinner at yields ranging from mid 3% to 5%.
Out of town offices and business parks offer higher yields, generally 7% plus, with mainly private or overseas equity investors focusing on those opportunities, especially where there is the potential for change of use to residential or hotel/student use.
Industrial property in the south east has been exceptional with yields reported commonly at sub 4% due to scarcity of supply and substantial proven rental growth. In turn this has had a knock on effect throughout the regions.
Modern multi let industrial property has seen a bun fight throughout the year with yields moving from 8% to 6.5%. Modern purpose built logistics units in key locations remain in high demand from UK institutions and specialised REITs with yields between 5% and 5.5%. The high demand in both markets has led to stronger yields in the secondary industrial market, although pricing and demand is not uniform and fundamentals are far more important.
Like Scotland, the retail property market continues to offer a mixed picture with high street investment actively focused on the prime pitches in key centres as well as restaurant and leisure properties. Investment demand for retail warehouses remains fair, albeit tempered by a limited supply. Demand for shopping centres is polarised with large key centres and neighbourhood schemes remaining popular while those in mid-sized towns can struggle.