Overseas investors eyeing up city deals
Property market set to become more dependent on high-worth foreign buyers
THE commercial property market in Scotland is set to become more reliant on overseas investment in 2017, as new money floods the country from ultra-high-net-worth individuals.
Private investors from the likes of China and South Africa are being drawn to Scotland’s cities because of the strong underlying fundamentals and preferential yields and leases relative to other European cities.
And Alasdair Steele, head of Scotland commercial at Knight Frank said a second independence referendum was not “anywhere near such a big issue” as it was for UK institutional investors.
In 2016, two-thirds of the £1.78 billion spent on commercial property was from overseas. In Edinburgh more than 80 per cent of its £966 million transactional spend came from overseas. In Glasgow, one-third of the £280m of spend was from overseas.
Mr Steele said that percentage was likely to increase this year, with a number of sales expected in Glasgow, and confidence returning to the Aberdeen market.
“Overseas buyers are here to stay and they will account for a significant amount of purchases going forward for the foreseeable future,” he said.
Mr Steele said real estate was a “safe and secure investment to diversify portfolios” with 27 per cent of global transaction volumes attributed to private buyers in 2016.
Knight Frank research has highlighted that a quarter of private client wealth is held in real estate investments, with the UK proving the most popular European destination for investment.
And Knight Frank’s global wealth team is seeing more people taking more interest in the Scottish market.
Mr Steele said London remained the flagship destination, but investors find it difficult to receive the required yields or miss out because of competition. This forces them to focus on the six big regional UK cities, and presently Glasgow and Edinburgh offered a strong occupier market with attractive yields and lease terms.
“Edinburgh in particular curries a lot of favour with investors as the fundamentals are strong, the pricing is attractive and it’s a well-known city that these guys have been to, and that touchy feely part is important for private investors,” he said.
While Brexit and the slide of the pound have made the UK a more attractive place to invest, Mr Steele said Scottish cities were also able to offer what property.
“We are constantly trying to monitor the flows of money through the globe, and there is money coming from new sources, new countries, but there are also different types of requirements,” said Mr Steele.
“If you look at the traditional private investor purchase, it would be a big trophy building with a longterm lease but we’re actually finding now that there are investors appearing who are looking for different properties. We’re seeing some evidence of people looking at more asset-management intensive properties, smaller properties, higher yield and risky buildings as well.”
The wide disparity between sale levels in Glasgow and Edinburgh last year can be put down to larger buildings in Glasgow not being at the right stage of their development cycle, but Mr Steele said that would likely narrow this year as refurbishments complete. investors wanted in
He said: “This year I think there will be more activity in Glasgow. What you’ll see is a mirroring of what has happened in Edinburgh, with bigger deals and more significant deals. They are more likely to be acquired by overseas money so I think we’ll see a rebalancing of transactional levels and investment interest across the cities.”
Mr Steele also said the increasing prospect of a second Scottish independence referendum was unlikely to have a bearing on market activity.
“What is clear is that the main group of investors that have expressed concern over the independence situation in the past have been UK institution rather than private investors,” he said. “The UK institutions have not been a significant player in the Scottish market for some time so that might actually help transactional volumes going forward. For overseas investors it is not anywhere near such a big issue.”