2023 proved to be a challenging year for Scottish commercial property investments. The total investment in this sector dropped significantly to £1.49 billion, marking a 34% decrease from the previous year. This downturn reflects the ongoing economic uncertainty impacting global and local markets.
However, it wasn’t all doom and gloom. The year showed a stark contrast between its two halves. The latter part of 2023 witnessed a 39% increase in investments compared to the latter half of 2022, signaling a rebound and a possible shift towards stability.
Sector-Wise Performance
Retail Reigns Supreme
Contrary to the national trend, retail investments in Scotland soared. With transactions totaling £714 million, the retail sector outperformed offices, which saw investments of £357 million. This surge is largely due to the resilience of high-demand areas like Buchanan Street in Glasgow and George Street in Edinburgh. The lack of supply in these areas has led to continued rental growth, making them highly attractive to investors.
Other Sectors
Industrial, leisure, and alternative sectors also contributed with investments of £172 million, £144 million, and £105 million, respectively. These figures reflect a diversified interest across various asset classes in Scotland’s property market.
Investor Profiles
Overseas investors continued to lead, accounting for nearly 46% of all transactions. However, their contribution dropped from £1.025 billion in 2022 to £680 million in 2023. Property companies, private investors, and UK institutions also remained active, showing the varied investor interest in Scottish commercial properties.
Key transactions included the sale of Craigleith Retail Park and Livingston Shopping Centre, as well as significant acquisitions in Glasgow and Edinburgh, highlighting the continued interest in prime Scottish real estate.
Future Outlook
Looking into 2024, experts from Savills remain optimistic. They anticipate Scottish commercial property to remain appealing, with the market adjusting quickly to new economic conditions. This adjustment is expected to yield attractive income returns for investors.
Expert Insights
Aly Wright from Savills notes the resilience of the Scottish market, with investment figures only 27% below the 10-year average. He also highlights the rising interest in retail investments, which have reached their highest level since 2016.
Knight Frank’s Analysis
Supporting these observations, a separate report from Knight Frank confirmed a similar trend, with around £1.5 billion of commercial property assets changing hands in Scotland during 2023. Edinburgh emerged as a star performer, witnessing a 23% rise in investment.
The industrial sector maintained a strong presence, while the office market experienced a low point. Interestingly, retail’s share in investment volumes increased significantly, showcasing a shift in investor preference.
Despite the challenges, international investors remained the most active, followed by private investors who found more opportunities in a market adjusted for higher interest rates.
Alasdair Steele from Knight Frank acknowledged the impact of rising interest rates and the cautious approach of both property owners and buyers. He said, “The last 12 months have seen a huge change in the investment landscape, with interest rates rising 14 times in a row between late 2021 and August 2023. That has inevitably had a big impact on the market and many property owners have decided to hold onto their assets – where they can – until there is a greater degree of certainty, while many buyers also paused until borrowing conditions improve. With signs that interest rates may have peaked and the economy is beginning to pick up, there are reasons for cautious optimism about 2024; there are a good number of assets currently on the market which should transact in the first half of the year and there are potential buyers showing more interest.”
A Market Poised for Recovery?
In summary, 2023 was a year of significant shifts and challenges for Scotland’s commercial property market. However, the resilience in certain sectors, coupled with a diverse range of investor interest, points towards a market that is adapting and potentially poised for recovery in the near future.