Commercial property investment volumes in Scotland reached £420m in Q1 2020, little-changed from the £414m transacted in Q4 2019 but was up by around 40% from a year ago, according to Colliers International’s Q1 Scotland Snapshot.
Prior to the COVID-19 lockdown Scotland enjoyed a relatively strong first quarter of the year in commercial property investment, says Colliers.
Transactional volumes remained below the five-year quarterly average of £581m. The sale of the Springside PRS scheme in Edinburgh accounted for half of all activity by value (£215m).
Offices and industrial recorded only limited activity during the first quarter, while the sale of two larger retail warehouses helped retail investment volumes to recover from a weak Q4 2019. Overseas investors remained an importance source of capital and accounted for two thirds of all activity. UK institutions were absent from the market in Q1 2020 for the first time since the EU referendum in 2016 and for only the third time on record.
Preliminary data for April suggests that the market came to a complete standstill at the start of Q2, although Kan Am has reportedly completed their acquisition of 4 North, at North St Andrew Street, in Edinburgh for £31m / NIY 4.33%. Furthermore, a number of assets are currently under offer, including the forward funding of an Amazon distribution facility at Glasgow Business Park, as well as high profile office and hotel asset in Edinburgh totalling circa £140m. These are being sold separately off-market which, if they complete, will help the overall figure.
Patrick Ford, director, National Capital Markets, Colliers International in Glasgow, said: “The weight of global capital has been on an upward trajectory over the past decade and although the COVID-19 impact will depress the total volume invested in 2020, we expect there to a significant upturn in activity when the UK get back to some normality.”
“While it is too early to tell, it will interesting to see how office occupiers will react and what impact there will be in the regional office markets. We believe the trend of northshoring will continue, as there is not the same challenges with managing large scales densely populated commuting, after lockdown.”
Elliot Cassels, director, National Capital Markets, Colliers International in Edinburgh, said: “For some, working at home or at least flexible working will be more commonplace but conversely there will be many employees’ and employers keen to be back in the office. However, with social distancing in place it is hard to see how co-working and hot-desking will work, until there is a vaccine available. Occupiers of such space may look for more traditional office space, resulting in increased demand.”
He added: “Also with more space required to achieve social distancing, those firms who are keen to see their employee’s back in the office they too may look to take additional space or re-occupy grey space.”
It was a relatively quiet quarter for the industrial sector in terms of investment activity with only three deals recorded and volumes were down to £5m from £80m at the end of 2019. However, assuming the country gets back to some semblance of normality relatively quickly, Colliers still expects good investor demand for industrial. Investors, though, will be carefully looking at the rent payment collection from tenants. Indeed, this will be true of all sectors which is why the retail and leisure sectors will be worst affected in terms of investor demand and values, with some exceptions, including supermarkets.
“Looking at who is going to be selling, it’s not like the global financial crisis, as there’s currently no distress in the market, although that could change,” concluded Patrick Ford.
“At the moment, we don’t see breaches of covenants and fire sales, or banks taking control. A big challenge is in how long it will take for the aspirations of buyer and sellers to match.”