Demand for Scottish commercial property investments has strengthened in 2018, due largely to improved investor sentiment and the opportunity to acquire better value product relative to London and the principal English centres.
The office proprety sector has been eventful as the positive occupational story encouraged strong investor demand. The main constraint on transactional activity has been the availability of suitable opportunities in the market.
Glasgow has value-added opportunities coming forward for investors to target while in Edinburgh the severe shortage of city centre office availability and scarcity of significant development opportunities has led to relatively few deals. Aberdeen has seen a flurry of recent deals, emphasising the relative value available there as the market adjusts.
The industrial property sector has continued to perform well with strong demand in the main centres, particularly around Edinburgh and Glasgow. The single biggest factor affecting the market is the availability of good quality stock. The flow of stock is constrained because of vendor uncertainty over reinvestment. Institutional funders, recognising the critical shortage, are beginning to consider speculative development.
The current healthy level of investor demand for quality assets in Scotland is expected to continue throughout 2018.
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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.