LISMORE Real Estate Advisors has revealed there are ‘promising signs of improvement’ for the Scottish investment market despite 2023 year-end volumes being down on the five-year average.
The organisation has just released its review of the Scottish investment market for the final quarter of a ‘tumultuous’ 2023, with many in the industry eager for a fresh start in 2024.
Lismore said a ‘more settled’ lending environment, realistic property values, and a ‘substantial’ pool of waiting capital suggest momentum is building.
Chris Macfarlane, director of Lismore, said, “The emergence of administrative receiverships signals progress in the market cycle, forcing over-leveraged borrowers to sell. Proper price discovery becomes crucial, with recent transactions, especially in pressured sectors like offices, providing benchmarks for realistic pricing and investor interest.
“Contrary to the belief that bigger is better, the most liquid part of the market remains sub-£10 million, attracting private buyers with limited debt requirements. The cost of money appears to be stabilising, offering some relief after a turbulent period. Well-capitalised investors with minimal legacy issues are encouraged to seize prime/core-plus assets in the current market.
“While logistics and multi-let industrials remain stable, offices pose a challenge with divergent opinions on future prospects. Retail warehousing emerges as a sector offering good value, attracting interest from investors.
“Buyer activity remains selective and opportunistic, with a focus on sectors such as Living and Logistics. Core-plus buyers are finding value in offices, leisure, and retail warehousing, driven by attractive pricing where debt can be accretive.”
Examining transaction volumes, Q4 witnessed £365 million traded – an 8% decrease from Q4 2022. Total volumes for 2023 are expected to end close to £1.4 billion, reflecting a 20% decrease from 2022.
The largest transaction of the quarter was the £45.5 million sale of The Centre in Livingston, one of Scotland’s largest shopping centres. Other deals included abrdn’s £30 million sale of Kingsway West Retail Park in Dundee and Patrizia’s £20 million sale of 9-10 St Andrew Square in Edinburgh as a hotel development opportunity.
The latest quarterly research undertaken by Lismore indicates optimism prevails as 96% foresee 2024 as a year of opportunity. Funds, managers, and private equity anticipate positive prospects, benefiting from softer yields and thin buyer pools. Property companies are more cautious, with 12% expressing pessimism, possibly anticipating heightened competition.
The top-performing sectors in 2024 are predicted to be living, industrial, and retail warehousing. Living, especially purpose-built student accommodation (PBSA), stands out due to a demand/supply imbalance in key cities.
Lismore added that factors contributing to a more liquid market include improving macro-economic conditions, stable/improving debt terms, and confidence.
Chris Macfarlane concluded, “As we raise a toast to the prospects of 2024, the property market in Scotland navigates challenges, embracing opportunities for growth and resilience. The road ahead may have its twists, but with optimism and strategic insights, industry players are poised for a year of progress and opportunities.”
