Market buoyed by continuing investor interest, but 2015 figures show deals down, writes Bob Serafini

Investment agents in commercial property tend to talk about the past year’s market performance as if they were discussing wine vintages.

So when the Scottish figures for 2015 were uncorked by Cushman & Wakefield this week, what kind of bouquet did they agree on for this year’s bottle?

Well, the good news is that there was more than £2.3 billion of money poured into commercial real estate, a substantial chunk of capital and evidence that UK and overseas investors still have the taste for this
asset class.

But the champagne should perhaps be kept on ice, since volumes were actually down – the 2014 figure was £3.1bn, for 2013 it was £2bn, 2012 £1.1bn, 2011 1.3bn.

Capital Markets partner at Cushman, Steven Newlands was still able to label the last 12 months as a good year, however, and certainly it was the second highest spend since the exceptional pre-crash bubble in 2007.

The largest deal was Harbert Management Corporation’s purchase of the 80 retailer Eastgate shopping centre in Inverness for £116m (6.75 per cent net initial yield).

There’s a lot of detail to drink in, but the biggest office deal was the sale of Standard Life’s HQ in Edinburgh for £93.75m (5.08 per cent), largest retail park changing hands The Forge, Glasgow, at £83m and top office deal in Glasgow was the purchase of Aurora in Bothwell Street for £72.6m. The top industrial price was £55m for the Harper Collins unit at Bishopbriggs.

One noticeable trend was the share of the investment pie spent on offices increasing from 30 to 42 per cent: "The pot has got smaller, but the proportion of offices traded has gone up," said Newlands.

Retail’s share stayed around a third, with the majority of spend on high street shops and edge of town parks rather than shopping centres.

The question of who is actually buying and selling is usually interesting and this time was no exception. In 2014, 51 per cent of the market was bought by UK institutions, followed by overseas investors with 29 per cent. This time round, insti tutions’ share fell to 26 per cent, while international investors, attracted by discounted yields available in Scotland, increased to 40 per cent.

Cushman steered away from any political interpretation, but it appears the traditionally conservative UK funds were being pretty cautious about spend north of the border – particularly as they also accounted for a third of all property sold.

With the property fundamentals still strong, and leaving aside the implications of an EU referendum, Newlands is looking forward positively to the year ahead. Already, the £100m Atria office scheme in Edinburgh is under offer and a funding partner is being sought for the projected £850m St James Quarter.

The focus is expected to be on prime property rather than the dregs and shopping centre specialist Stephen Bibby believes that overseas buyers will prove to be the dominant investor.

German and Middle Eastern money has been chasing the big schemes in the capital, but in an increasingly global market there are high net worth investors from Russia, Sweden, and around the world who have the firepower to buy the income they want. Though some analysts feel the property cycle is currently near the peak, Newlands is positive about the fact that overall returns are expected to be six per cent to eight per cent this year: "That kind of return is still good relative to bonds or equities, and, with the current ups and downs of the stock market, there are reasons why people would want to invest in property."

Though Cushman declined to comment on this, it is known that one major deal imminent in Glasgow is the sale of St Enoch shopping centre.

It is believed that another private equity player is under offer to purchase global investor Blackstone’s interest. Argyle Street generally is showing signs of improvement thanks to brands like J D Sports.

 

In Brief

MONEY FLOODS INTO LOCH NESS
A set of hillside holiday lodges overlooking Loch Ness has been acquired by a hotel company using an innovative investment brokerage, operating a form of collective funding.

Ancarraig Lodges have been bought by Kent-based Ether Hotels & Escapes using a model which allows clients to collectively fund property investments by putting in as little as £10,000 each.

Richard Moss of Colliers International, who handled the sale for Roy Homes Developments, said it was the first crowdfunding-style deal he had seen in the Scottish tourism sector. Capitalise Invest say their collective model allows the investments to remain secured against the asset yet achieve returns which surpass bank figures. The park is three miles from Drumnadrochit and has also raised backing for a major expansion.

YEAR OF THE TAKEOVER?

Takeover fever seems to have gripped the commercial property market in 2016. No sooner have two big consultancies DTZ and Cushman & Wakefield got together than it looks like they’re about to be followed by several others.

Trade reports indicate Countrywide, who acquired Lambert Smith Hampton two years ago, have now made an approach for Deloitte Real Estate, previously Drivers Jonas. Meanwhile German parent Bilfinger, which owns the GVA/James Barr merged business, has confirmed offers of interest for its commercial property opration.

A GVA spokesman told the Herald: "We are trading better than at any period in the company’s 200 year history. The company is more robust than when acquired by Bilfinger in 2014, and we remain debt free, with record profits."