More ‘positive’ times lie ahead for Scottish investment market

Chris Thornton

NEW research has uncovered positive news for the Scottish investment market.

Lismore Real Estate Advisors’ quarterly review showed that transaction volumes in quarter two have increased by 71% since quarter one, with circa £300 million traded. However, activity still remains around 30% below the five-year average.

Lismore is forecasting that the second half of the year will be more positive, with around three ‘significant’ transactions north of £50 million understood to be in the pipeline.

Chris Thornton, associate at Lismore, said, “Activity in the last quarter has continued to see the wall of overseas equity targeting our best long income assets. This has included the emergence of American REITs in the Scottish market, mainly focused on longer income retail warehousing, with schemes anchored by food stores and value retailers, being particularly liquid. Pricing in this sector has sharpened anywhere between 50-100bps during the course of this year.

“We have also seen the continual growing appetite for anything close to the life sciences sector. On the downside, city centres are taking time to regain momentum with footfall remaining fickle and retailers and restaurateurs having to work very hard to attract customers back through the doors. Retail re-purposing has started in some of the strongest streets but there remains significant challenges for those city centre locations unable to attract alternative use investment.

“Developers and occupiers are increasingly working hand in hand to create bespoke units (particularly in the logistics sector) which clearly meet tenant specifications and provide occupational certainty for both parties, with tenants willing to pay for an exacting specification.”

James Barrack, Knight Property Group founder and chairman, said, “This is the strongest occupational market we have seen in the past 25 years. There has been a structural shift in the demand for the industrial and logistics sector, particularly with the exponential growth in online shopping, which should lead to longer-term more sustainable growth. The future hot spots for speculative development in Scotland will always be driven by location, although quite rightly, the ESG agenda is also moving towards the top of occupier’s requirement criteria.

“Availability of oven-ready land which ticks most of the occupier boxes may force tenants to take a view on some compromises. Pre-let demand is as high as we have ever seen in this sector but not all tenants can wait for new stock to be built. With rising construction costs, the short term winners could be average quality second hand stock which could witness rental improvement if new build pipeline slows.”