Scotland’s commercial property market could welcome a number of new international investors over the next 12 months, particularly among private overseas buyers, Knight Frank has said.
The independent real estate company said that new sources of money were likely to appear in 2017, with interest already coming in from countries such as South Africa and China.
According to 2016’s investment figures, over two-thirds of investment in Scottish commercial property came from overseas – a significant proportion of which is likely to have been from ultra-high-net-worth individuals.
Numbers produced by Knight Frank as part of its annual Wealth Report, showed that £1.17 billion of the £1.78bn spent on Scottish commercial property, including offices, hotels, retail outlets, student accommodation, and industrial units, was international money. The figure was the highest for more than a decade, eclipsing the average of 30.17% recorded by overseas investors in the past ten years.
Edinburgh proved particularly popular with overseas investors – £966 million of the £1.19bn spent in the city came from international sources; equivalent to 81.14%. Meanwhile, investment from abroad made up about a third of spending in Glasgow, 32.92%.
The report from Knight Frank also found that commercial real estate remains an important asset class for private investors, with 27% of global transaction volumes attributed to private buyers in 2016. Its survey findings showed that a quarter of private client wealth is held in real estate investments, with the UK proving the most popular individual country in Europe as a destination for investment.
Alasdair Steele, head of Scotland commercial at Knight Frank, said: “Scotland is very much on overseas investors’ radars, particularly private buyers. We’ve had enquiries coming in from all over the world, which could mean a number of new entrants in the coming 12 months, provided the right type of property comes up for sale.
“Edinburgh continues to emerge as a hub of investment activity. Often investors will have visited the city, know what it has to offer, and can see its intrinsic value. Its position as a capital helps it stand out from the other key regional centres in the UK and, compared to other European cities, Edinburgh has more landlord-friendly lease terms, relatively attractive pricing, and strong occupier fundamentals. It stands out for all the right reasons.
“Over the past year we’ve also seen overseas buyers investing in less prime locations and buying properties with shorter lease terms. This trend seems likely to continue as overseas and private buyers seek a more generous income return, which is difficult to come by in such low economic growth and interest rate environments.”
The report comes as separate statistics revealed that overseas investors ploughed £5.8bn into the UK’s regional commercial property market in 2016, growing to account for almost one third (29%) of the total investment outside of London, with hot spots in Edinburgh, Manchester and Cardiff.
According to international real estate advisor Savills, Middle and Far Eastern buyers were particularly active outside of London in 2016 spending £1.9bn, an increase of 90% on their total spend in the UK regions the previous year.
The multi million pound funding of Edinburgh’s St James Quarter in the final quarter of 2016 by Dutch pension asset manager APG set the Scottish capital city at the top spot for international investment into commercial real estate outside of London (80% market share). Savills data shows, in terms of share of total turnover, Greater London (58%), Manchester (57%) and Cardiff (45%) also experienced noteworthy activity from international investors in 2016, followed by Glasgow (28%), Birmingham (28%), Bristol (8%) and Leeds (5%).
Nick Penny, investment director and head of Savills Scotland, said: “Despite Brexit and the uncertainty surrounding Indyref 2, Edinburgh is a globally acknowledged capital city, a power house and a major tourist destination. This, coupled with the available discount in Edinburgh to comparative UK cities south of the border, and any further discount from the drop in Sterling, has seen overseas investors account for 80% of all property investment in Scotland last year.”