Is uncertainty the only thing to be sure of?

David Davidson on the sector’s response to another referendum

In the south of France for this year’s MIPIM property conference a fortnight ago a collective groan greeted the news that a second referendum had been called.

How were the Scottish agents present going to promote Scotland as a great place to invest and do business with yet more uncertainty ahead?

However after meetings with investors from across the globe, the feedback on Scotland was far less negative than expected.

“Uncertainty is the new certainty” one head of a global fund manager summarised.

With the Brexit vote, Trump’s win and European elections in Holland, France and Germany, it seems that Scottish politics is far less of a concern than it was in 2013/2014.

Back then the run up to the vote had a big impact on investment – Cushman & Wakefield’s research shows that in the second quarter of 2014 volumes were down to £397 million from £687m in the first quarter as the fund managers waited for the result.

After the vote, deals which were previously put on hold were progressed and volumes rose to £960m in the third quarter.

A similar pattern was clear in the UK in 2016, although no-one predicted a Leave result.

Despite all of the uncertainty, overseas investors have been increasing their presence in Scottish commercial property in recent years, accounting for 56 per cent of total acquisitions by value and four of the five largest deals in 2016.

Speaking with a number of other fund managers with global responsibilities it was heartening to hear that they would continue to invest in Scotland, but the main question was whether current pricing reflected the increased risks of currency, potential changes to taxation and any impacts on economic performance.

Looking to the months ahead, it is inevitable that there will be an increase in the number of sellers particularly from the smaller funds and investors who fear the ups and downs that face Scotland.

At the same time however, it looks like there will continue to be a strong pool of buyers for good quality investments available at a discount to the rest of the UK and Europe.

The next two months will be an important guide to market activity and pricing levels, as a large number of deals are currently under offer, and as new product comes to the market.

This week we launched two office sales – Granite House in Glasgow and Horizons House in Aberdeen.

The response of investors outside the UK is encouraging and contrasts sharply with the more emotional and negative response from many of our contacts in London.

Scotland’s commercial property looks fundamentally cheap at a time when the asset class continues to be in favour from a wide range of investors across the globe.

Occupational activity is also holding up – particularly offices in Glasgow and Edinburgh and there are even some early signs of recovery in Aberdeen.

The same is true for retail, leisure and hotels and the growing appetite for private rented housing.

Uncertainty may indeed be the new certainty for the foreseeable future, but the Scottish market looks set to weather whatever it brings.

“Scotland’s commercial property looks fundamentally cheap at a time when the asset class continues to be in favour”