Follow us
Select Page

What’s happening with Scottish property?

by | Mar 30, 2017

The Scottish property market experienced a weak H2 last year, despite a robust performance in the industrial market.

 

Quarterly returns for Scottish commercial real estate rose to 1.4% in the final quarter of 2016, up from -2.2% in the third quarter. Indeed, returns across all sectors were negative in Q3 due to considerable falls in capital values following the result of the EU referendum. Total returns for the year were also 1.4%, and, though welcome, this performance lags behind the UK All Property total return of 3.5%. Despite the disparity, the decline in total returns has been less dramatic in Scotland than observed compared to the rest of the UK.

Industrials continue to be the strongest performer in both Scotland (and the UK) with a total return of 4.3% for the full year, even growing 0.2% in Q3. However, this performance was somewhat distant from the UK industrial total return of 7.4%. High street shops were also a strong performer with returns of 3.1% for Scotland and 5.4% for the UK. In contrast the retail warehouse sector saw virtually zero total return in 2016, with the Scottish sector marginally in negative territory. Scottish offices were the only other sector to see negative returns for the year, having suffered a greater capital loss immediately after the referendum than any other sector.

The immediate impact on Scottish real estate from the EU referendum appears to have had a short term shock on capital values, with the drop in Q3 larger than the recovery of Q4 in all sectors bar high street shops. This perhaps reflects market caution due to future political uncertainty, such as the timing of the UK’s exit, and a possible second Scottish independence referendum. Indeed this uncertainty is exemplified by Scotland having the lowest PMI score of any UK region.

Rental values in the retail sector have been increasing slowly and steadily since the start of the year and remain low but positive (4.5%), whilst the total growth rate of industrial assets was 6.75% for the year. Optimism however must be tempered, with a long running trend of slowing rental value growth. Conversely office rental values have been in decline since Q2 2016 with the biggest loss in value coming in the final quarter (-1.75%).

Total investment in Scotland remained strong, finishing at £2.1bn, only slightly down on 2015; the most notable deal being APG purchasing a 75% stake in the St James Centre, Edinburgh, for £570m from TH Real Estate. Year on year comparisons show drops in all other sectors, with the biggest decline (-42%) in the ‘other’ sector, comprising leisure and alternative/mixed developments.

As one of the publications produced on the UK property market, CBRE’s full Scottish Property Quarterly report gives a more in depth look into the performance of Scottish property, and the outlook for the approaching quarter. The Q1 2017 publication will be released in early May detailing the first quarter performance and the outlook for the year ahead.

Regional office market expectations in 2019

Regional office market expectations in 2019

2018 was an outstanding year of office take-up across the UK regional and SE office markets. Can 2019 reach the same dizzying heights? CBRE’s new UK Office Property Perspective reveals record breaking take-up activity (of nearly 7.5 million sq ft) in...

Smarter Cities 2025

Smarter Cities 2025

The term “smart” can be a prefix for a whole host of things: phones, motorways, tickets, cards, buildings.  And also cities, many of which are making concerted attempts to become smarter as a way of generating a range of economic, social, cultural and...

UK offices: the return of the public sector

UK offices: the return of the public sector

Over the past three years, HMRC have taken over 2.2 million sq ft of new office space across 11 regional centres. But have these deals been pivotal to the success of the UK regional office markets or have they simply added to the already growing...

Financial services: why we can bank on London

Financial services: why we can bank on London

CBRE’s latest London report ‘Why we can bank on London’ explores the three key challenges facing the financial sector: Brexit, changing regulation and the growing influence of fintech. The UK is the most specialised major economy in financial services...

Article 50: shades of grey

Law in London 2017