Scottish property investment resilient despite slowdown

Investment volumes in Scotland remain stable, finds Investor Survey 

Despite the UK economic slowdown in the first half of the year, investment volumes in Scotland remained stable, according to JLL’s latest analysis of UK investment activity.
During the first half of 2017, property investment volumes in Scotland hit £713m, 2% down on the same period in 2016. The biggest increases were seen in Wales, Greater London, the East of England, and Yorkshire & Humber. The biggest decreases in investment volumes were evident in the North West, the North East, East & West Midlands, and the South East.
Exchange Place 1 – part of a trio of Grade A city centre offices in Edinburgh’s financial hub sold for £47m to a German investment fund in May
Looking ahead, the latest JLL Investor Survey indicates that investors remain wary of the risks associated with Brexit, and this continues to weigh on sentiment and dampen total return expectations, with 71% expecting returns to be lower over the next 12 months. However, overseas appetite for regional property investment looks strong, with 30% of investors now looking to the big regional centres, including Scotland, up from 22% at the same point last year.
JLL says this regional interest has long been evident in Scotland, where overseas investment has risen significantly in recent years. In excess of 90% of the larger (over £20 million) transactions in Scotland during the first half of the year have been acquired with overseas equity.
Chris Macfarlane, Director – Capital Markets, for JLL in Scotland said: “Volumes are holding up reasonably well but the figures are distorted by larger deals – the traditional churn market of £5-10 million remains relatively subdued. Polarisation – the difference in pricing between prime and secondary – is undoubtedly increasing, and investor appetite continues to be focused on Scotland’s two biggest cities, Edinburgh & Glasgow. Demand for student accommodation, hotels and serviced apartments has been particularly strong within these cities.
“Overseas investor interest in Scotland continues to increase, partly due to a combination of a lack of UK Fund appetite and weak sterling. Ultimately, however, it really shows the weight of global capital currently looking for a home and highlights that globalisation has truly arrived in the Scottish market.
“Looking forward, we are confident of a strong finish to the year, predominantly on the back of a number of large transactions in the pipeline, with volumes likely to near those from 2016. Polarisation between prime and secondary will exacerbate and the premium on long let (index linked) income will increase. An important change is that we’re likely to see UK Funds starting to selectively re-invest in Scotland but overseas global capital will continue to dominate the larger transactions.”