Investment into Scottish commercial property reached £320 million in the second quarter of 2023, a significant year-on-year increase, but still down 35% compared with the five-year quarterly average.
According to Colliers, the £320 million total was spread across 30 deals, with an average lot size of £10.7 million. This was up from £8.6 million in the first quarter but slightly below the five-year average of £11 million.
The Q1 five-year quarterly average for Scottish commercial investment is £490 million. Investment total for the first half of the year reached £570 million, 66% than the H1 2022 figure.
Hotels accounted for 35% of all investment activity by value in the second quarter, reaching £110 million. This was up from only £10 million in the first quarter. The largest transaction in the quarter was the £85 million sale of The Caledonian in Edinburgh to Henderson Park. The boost to volumes also meant that first-half 2023 investment was up by 93% on first-half 2022 levels.
Offices accounted for more than a quarter (28%) of investment activity, with volumes reaching £90 million in the second quarter, rising from the £40 million registered in the first quarter. Nine assets changed hands in the second quarter, up from the six in the first quarter, but down on the five-year quarterly average of 12.
The largest deal in the second quarter was the £36 million sale of Glasgow’s 191 West George Street to Corum. The asset was sold by NFU Mutual for a fee reflecting a 6.4% net yield and is let to insurer RSA Group and sales and marketing business Edrington-Beam Suntory UK Distribution.
Oliver Kolodseike, director in the research and economics team at Colliers, said: "As with all markets across the UK, Scotland is no stranger to the limiting impact that high interest rates, cost of living and the cost of construction is having on the market. While there’s no silver bullet that can help, it would seem we are reaching peak in interest rates and as such some pressures should ease as we head towards next year."
Retail investment came in at £50 million in Q2, accounting for 17% of all commercial real estate investment volumes, down from the £110 million recorded in the first quarter. Five assets traded during Q2, the largest of which was Realty Income Corporation’s £31 million purchase of Auldhouse Retail Park in Glasgow.
But industrial volumes came to a standstill in the second quarter at below £10 million, according to Colliers. In Q1, £90 million was transacted but the H1 amountwas 70% below the 2022 figure.
Elliot Cassels, director in the national capital markets team in Scotland, added: "Whilst the vast majority of investor appetite is for ‘beds and sheds’ there is still appetite for all sectors. But at adjusted prices to reflect the market.
"The gap between vendor aspirations and buyer expectations has caused transactional volumes to plummet. Additionally, deals have generally been taking longer to cross the line. However, with many now stating interest rates are close to their peak, and inflation expected to ease we are optimistic that 2024 will bring easier conditions and increased investment volumes."