Rising interest rates, Greece’s latest debt bailout and Britain’s looming European Union (EU) referendum present a trio of potential risks for the commercial property market, according to the latest report from consultancy firm Lambert Smith Hampton (LSH).
Looking at the outlook for 2016, the firm’s UK Investment Transactions Bulletin warned: “The EU referendum, once pencilled in, is likely to be a nervy period for both UK and overseas investors. Even if the chance of a ‘Brexit’ vote is seen as relatively slim, the run-up may stymie investment activity and possibly cause prices to soften, just as Scotland’s referendum on its split with the UK demonstrated in 2014.”
The comments came as LSH’s figures showed that investment in British commercial property reached £36bn during the first half of 2015, the second highest total on record.
Across the UK, the amount invested reached £16.8bn during the second quarter, an increase of 33% year-on-year, despite volumes falling north of the Border. Eighteen deals were completed in Scotland during Q2 2015, down 24 during the same period last year, with the amount invested falling by 42% to £298m.
Scotland’s average deal size dropped by 23% year-on-year to £16.6m, with the office and retail sectors continuing to prove popular with investors. Investment in Glasgow’s office market was a bright spot during the second quarter, with the city recording 18% of all deals outside with London, coming second only to Manchester.
Ewen White, director in capital markets with LSH in Glasgow, said: “Yields across all sectors in Scotland are at least 100 basis points softer than prices being achieved in England’s regional cities and, ironically, we have the strongest occupational market fundamentals we have seen for a number of years. “Consequently, Scotland continues to show excellent value for money which has been reflected in competitive closing dates when good quality stock comes to the market.”
Some of the key deals in Scotland in the second quarter included: Moorfield Group’s £60m acquisition of 1-3 Atlantic Quay, Glasgow; M&G Real Estate’s purchase of the Ayr Centre for £35m; and Savills Investment Management’s acquisition of 71-77 Princes Street, Edinburgh for £24m.