Market remains weak

Scotland’s commercial property market is still performing worse than the UK average across all sectors, according to CBRE’s Scottish Property Quarterly report for the third quarter of 2011. Across all sectors capital values have fallen (-0.2%) in the quarter, as have rental values (-0.4%). 

Scotland’s commercial property market is still performing worse than the UK average across all sectors, according to CBRE’s Scottish Property Quarterly report for the third quarter of 2011. Across all sectors capital values have fallen (-0.2%) in the quarter, as have rental values (-0.4%). This marks the 12th successive quarter in which rental values have declined in Scotland. Meanwhile construction levels were broadly flat during the third quarter, says the latest RICS Construction Market Survey.

The office sector was again the worst performing sector in Scotland, with a total return of 0.3% compared with 1.5% for both retail and industrial. While there is a large disparity between Scotland’s office sector total returns and the UK average total returns, this can be partly explained by the strong performance of the central London market. Retail capital values in Scotland remained flat over the quarter. Rental values however continue to fall, to the tune of 10% since Q3 2008.

Despite this drop, equivalent yields for Scottish retail are now at their lowest level since Q2 2008. Having posted a strong Q2 result, the Scottish industrial sector remains the strongest in terms of rental value growth even though Q3 2011 saw rental values fall by 0.3%. This sector keeps its distinction in Q3 by being the only one to have increased rental value overall in 2011, albeit by 0.25%.

Q3 2011 was the busiest quarter of the year to date for capital purchases, with £355.1m of investment sales. Investment sales totalled £880m for the year to Q3, down on the same period in 2010 (£1.07bn) but higher than both 2008 (£824.3m) and 2009 (£502.6m). Retail (£132.2m – 37%) and offices (£52.8m – 15%) represented the two strongest sectors for investment sales. Industrials performed relatively weakly with only £32.2m of sales for the same period.

Aileen Knox, director of CBRE (Scotland), said: “While the overall performance of the Scottish property market this quarter may not be on a par with the rest of the UK, it is encouraging to see the volume of investment sales has increased and that the majority of investors this quarter are UK-based. Our information shows there were a number of transactions this quarter over £20m covering all sectors with retail, retail warehousing, offices, student accommodation and hotels all featuring.

“With the exception of Aberdeen, the office market in particular remains relatively weak, much of which can be attributed to the lack of quality accommodation and the disparity between limited primary stock and the secondary and tertiary markets which fail to attract enough attraction from investors and occupiers.“