The level of investment coming from overseas is high in Scotland, accounting for around 70% of spend on substantial assets in 2019.
Attracted by the favourable exchange rate and comparatively generous yields on offer, purchases by foreign investors last year 110 St Vincent Street, Glasgow (£48m), 4-8 St Andrew Square, Edinburgh (£120m) and Sir Ian Wood House, Aberdeen (£80m).
Investor demand in Scotland’s cities is likely to continue in 2020 as prime office and industrial opportunities in Edinburgh and Glasgow provide strong performance and liquidity. Glasgow’s grade A supply is all but exhausted and is likely to result in a new headline rental figure for the city, while Edinburgh’s supply is also at record lows with occupiers choosing to renew existing leases rather than relocate.
Aberdeen’s resilient economy and a positive take up trend provides investors with confidence that the market recovery is well underway. Some high quality assets let on long leases are likely to become available at attractive income yields.
Prime office yields in Edinburgh and Glasgow remain at 5.0 – 5.25% with Aberdeen closer to 6.75 – 7.0%.
Across Scotland as a whole the industrial sector generated the greatest demand from investors in 2019. Multi-let assets and larger single-let industrial units and distribution sheds offering secure income are sought after and mainly snapped up by overseas investors. Interest from UK funds remains more subdued.
Scotland continues to offer good yield value for industrial stock compared to England where the market has become overheated in some locations.
Decent quality multi-let industrial estates are generally trading for 6.0 – 7.0% in Glasgow and Edinburgh and 8.0 – 9.0% in Aberdeen.
Single let long lease properties are 5.0 – 6.0% in Glasgow and Edinburgh and 6.5 – 7.0% in Aberdeen.
Investment sentiment has shifted in recent years to favour ‘alternatives’ such as Purpose Built Student Accommodation (PBSA), hotels, infrastructure and income-producing residential sectors including Build to Rent (BTR) residential.
This alternative property investment sector is well placed to grow in Scotland, as capital allocations and the search for sustainable income fuel an increase in development and funding activity.
The early signs in 2020 are that the potential of greater political stability is encouraging a more positive property market sentiment, particularly where the market fundamentals are strong.