SCOTLAND’S investment market has enjoyed a pre-summer ‘flurry of activity’, according to new research.
Lismore Real Estate Advisors has released its review for the second quarter of 2022, which revealed the market has ‘continued the momentum’ built up earlier in the year with transactional trading of circa £612 million, up some 104% on Q2 2021.
Activity for the quarter was 56% above the five-year average, although this is skewed by the pandemic-impacted Q2 2020. Excluding 2020, the Q2 2022 figure is 27% above the average.
Lismore cited the ‘standout deal’ as HFD Property Group’s £215 million sale of 177 Bothwell Street, Glasgow to Pontegadea, with ESG credentials driving ‘premium pricing’. Other key transactions included the £30.2 million sale of the Premier Inn, Sauchiehall Street, Glasgow, the £16 million sale of 123-129 Buchanan Street, Glasgow and the sale of 124-125 Princes Street, Edinburgh for £15.8 million.
A number of significant deals, particularly in the PBSA market, are due to complete early in Q3 before what could be a ‘quiet summer’ as investors ‘take stock of the macroeconomic environment’.
Lismore added that pricing likely to come under pressure on assets which are not absolutely prime, particularly if they do not meet ESG credentials. This is further driven by increased cost of capital and more ‘cautious’ decision making.
Colin Finlayson, director of Lismore, said, “Cash remains king, as the increasing cost of capital for debt backed investors is creating an advantage to cash investors – if they can move quickly then opportunities will arise in the second half of the year.
“There remains a persistent strong demand for PBSA from sector specialists and funds, which is driving pricing. The Scottish BTR market continues apace in Glasgow and Edinburgh although build cost inflation is keeping the supply pipeline in check.
“Aberdeen could see resurgence and be one of the winners over the next six months, with investors seeking out higher yielding stock to balance their portfolios. The Granite City may well begin turning heads, with a yield discount to prime central belt assets of circa 400-500bps.
“After a strong Q1, caution in the market is leading driven by the war in Ukraine, rising inflation and more challenging debt conditions, has caused by investors to pause for breath.”