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Scotland is back on target

Will Sandwell provides a round-up of the Scottish investment market.

The past six months have seen continued activity in the UK commercial real estate investment market, with prices rising and yields compressing across most sectors. 

UK institutions are again very active, albeit selective and there is a clear weight of overseas money hitting the UK. Equity from Asia and the UAE has been particularly evident in central London and in typical fashion these investors are now starting to look for enhanced yields in the regions having secured trophy' 3% 5% yielding assets in the capital. 

Scotland is no exception to increased activity and improved pricing. In 2017 approximately 2.27billion of investment stock traded in Scotland, up 21% on 2016 total volume. We have seen multiple 10m 100m transactions complete in traditional sectors (oce, retail, industrial)  and the demand for alternative sectors oering long leases (15 years plus, usually with index-linked rent increases) is staggering and shows no sign of fading. 

There has been a clear yield gap between English and Scottish assets over the last ve years, mainly due to perceived risk from Scotland's political uncertainty. 

The Galbraith Investment team recently spent a day in the City of London visiting institutional investors and UK pension funds. The message was clear: Scotland is very much back up there as a target location. This is promising news for our market. Pricing on those deals which have concluded shows this yield gap between Scotland and England is now reducing. 

Here we explore some recent activity. 


The oce and industrial sectors were particularly appealing before a steep decline in oil price at the end of 2015. Investment volumes dropped from 784m in 2014 to only 58m in 2016. Oil prices have increased since Q2 2017 and for the time being seem to have stabilised at $60 $70 per barrel. Investment volumes since the start of 2017 totalled 237m some way from the peak but it is positive to see investors such as LCN and Gulf Islamic Investments both acquiring oce assets in excess of 40m. Both of these deals have provided net initial yields in excess of 6.50% a very attractive return when viewed on a global and UK context. 

The fundamentals of the Aberdeen market remain the same: global energy companies with very strong covenants requiring best in class real estate for their northern hemisphere operations. This means developers can still demand long leases (15 years plus) and index-linked rent reviews which generally create attractive investment stock. 

Aberdeen remains a global centre of excellence for the energy sector and we expect to see more exciting activity and opportunities in the city over the next 12 months. 


Glasgow has seen 816m of stock traded during the past 12 months including these notable transactions: 

Frasers Centrepoint purchase of Hillington Park from Patrizia for 137m, a dominant industrial and oce estate, and the largest single ownership opportunity of its kind in Scotland. 

L&G acquired 3 Atlantic Quay from mooreld for 50m reecting a yield of 3.75%. This investment comprises a fully refurbished 80,000 sq ft Central Business District oce building let to the Scottish Courts and Tribunal Service for 25 years with index-linked rent reviews.  

Another key oce transaction was the 66m acquisition of the 155,000 sq ft Bothwell Exchange at 122 Waterloo Street which is let to morgan Stanley. The grade A oce property was developed by HFD Group and purchased by South Korean-based multi Asset Global Investment reecting 5.60%. 

Again, within the Central Business District, a private Spanish investor purchased a mixed-use oce/prime retail block on Buchanan Street and St Vincent Street from royal London Asset management for 48.55m reecting 5.16%.  

Finally, in the out-of-town retail warehouse sector, Sidra Capital (Saudi) purchased the 193,000 sq ft Great Western retail Park for 57m, reecting a yield of 6.18% from KKR. 

Activity in the Glasgow market is very promising. New build oce developments have been successful in their leasing campaigns which has in turn triggered investment sales. Buchanan Street remains a 100% prime UK retail pitch and rent continue to grow. The industrial sector has been very buoyant in the Greater Glasgow conurbation and there is good tenant activity across the market, from multi-let to large single let assets. 

Investor demand for industrial stock continues to outstrip the supply of opportunities, causing most sales to close via competitive closing date situations.  


About 962m of investment stock in Edinburgh has traded in the last 12 months. Industrial stock would be a target for most investors but the city and immediate surroundings suers from a lack of quality new supply and minimal big box' distribution product. Where small/medium stock is available, for both single and multi-let assets, competition can be erce.  

The retail sector has a slightly mixed consensus but is showing liquidity. The impact of the new St James Quarter Shopping Centre has split opinion and strategies, while George Street rental growth, which has been very evident over the last three years, seems to have stalled slightly. Conversely, Princes Street has recovered with rental evidence being more consistent now than three to ve years ago. 

Leisure operators have continued to be active in Edinburgh and it seems most national brands have now satised their requirements for the core CBD. recent additions include Wagamama, miller & Carter Steak House, Five Guys, Gaucho and The Ivy. Prime yields for 3m 10m retail and leisure assets sit comfortably in the 4.50% 5.50% yield range, and openly marketed stock has attracted signicant interest from a broad range of investors. 

The Edinburgh oce sector is a target market for many property companies and UK institutions.

Occupational supply is low, oce development lag continues to prevail and re-development of older oce buildings to higher value alternative use (mostly residential or hotel) is putting additional pressure on the overall supply, albeit from the bottom end of the quality scale. 

Subsequently, rental growth has been proven with 32.50 psf comfortably achieved on modern Grade A oce stock and 28.00 psf secured on refurbished core stock. With the supply/demand dynamic, rental growth is something most investors continue to forecast. Due to lack of core CBD development opportunities, many turn to the recycling of existing stock, and standing investments. 

Prime Edinburgh oce yields sit at 5% 5.75%, even for those investments oering only two to three years term certain income. We anticipate continued demand and possibly further yield compression over the next 12 to 18 months. 

Key recent Edinburgh transactions include L&G's funding of New Waverley, the 106m government hub oce, reecting 4.29% net initial yield. Abu Dhabi-based Lulu Group purchased the Waldorf Astoria Hotel for 85m, while rockspring acquired an older but prime location oce/retail asset on St Andrew Square let to regus and Sainsbury's for 25.75m reecting 5.20% in an o-market situation. The building provides an average term certain income of 4.58 years. 

In the retail sector, a private investor client of Galbraith purchased the landmark Jenner's Department Store on Princes Street for approximately 53m, providing 23 years term certain income.


Statistics sources: Galbraith Group / Property Data