Overseas investors drive record breaking property investment

“Commercial property continues to offer a compelling income return when compared to other asset classes…”

More than £478 million has been invested in commercial property in Edinburgh so far in 2016 – the city’s highest level recorded for this stage in the year since 2007.
That’s according to commercial property specialist Savills’ latest research, which found that Scottish commercial investment in 2016 to the end of Q3 has reached £1.04 billion.
Key deals include Aberdeen Property Investors buying Dundas House in Edinburgh for £25 million; TRUIVA purchasing Waverley Gate, also in Edinburgh, for £63 million, and the FORE Partnership paying £23.25 million for 50 Bothwell Street in Glasgow, with all three deals completing post Brexit.
Rod Leslie, associate director in the investment team in Savills Scotland, said: “A move by investors to redistribute money away from the more volatile stock markets, lower yielding gilts and riskier equities, together with an improved debt market and stabilised liquidity within the retail funds, have all combined to maintain a healthy level of investor activity in Scotland’s real estate sector.
“Commercial property continues to offer a compelling income return when compared to other asset classes.”
Of the total volume across Scotland, Savills says 41% was transacted by overseas parties, attracted to the discounts the devaluation of Sterling has allowed for with entry prices appearing 15-20% cheaper than four months ago. Yet aside from resulting reductions from currency movement, Savills points out any concern over a widespread fall in property prices following Brexit have subsided.
Leslie added: “The few discounted acquisitions that emerged as open-ended retail funds took measures to create liquidity have quickly passed and we have returned to a relatively normalised market driven by investors chasing the defensive long income and covenant related deals. Discounts allowed for by the fall in Sterling and a perceived value in the regions, versus London, has led to an influx of overseas investors into Scotland.”
Savills demonstrates the strength of the market with the sale of Waverley Gate, which completed in September, at a price only 6% lower (£63 million, 5.69% NIY) than that offered by a different investor before the EU referendum and despite the pause for thought at the end of June. 
According to the firm’s research, the total investment across Scotland’s commercial property market is currently 5% below the 10-year average (£1.1 billion).
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