NEARLY £150 million in commercial property deals in Scotland’s cities were abandoned in the wake of the Brexit vote, including the proposed sale of Wood Group’s new headquarters in Aberdeen.
Figures for the third quarter of 2016 show that commercial property investment in Scotland collapsed by 74 per cent to £191m, marking the weakest performance for four years.
The figures, compiled by global research firm CoStar, come as Edinburgh-based Ediston Property Investments Company has said an “encouraging” post-Brexit vote market has now been established.
The group’s valuer, Knight Frank, has removed a ‘Brexit caveat’ from its quarterly valuation of Ediston’s portfolio, which is valued at £181.4m, but Ediston highlighted investor caution.
Scotland has now endured a fourth consecutive quarter of declining investment, impacted by a 57 per cent reduction in office investment.
Deals that did not proceed as a result of the UK electorate choosing to leave the European Union included the £78m sale of Sir Ian Wood House in Aberdeen, the £40m sale of Argyle House in Edinburgh and the £30m sale of the Nike Store in Glasgow city centre.
Sir Ian Wood house is owned by Argon Developments North, who leased it to the oil giant upon its completion in February 2016.
The value of a number of deals were also impacted by the Brexit vote, it was reported. Waverleygate and 50 Bothwell Street had their prices chipped from £68 million and £27 million respectively.
And the £70 million sale of New Uberior House & Princes Exchange in Edinburgh has stalled.
The prolonged period of uncertainty following the vote means a number of investors are being cautious, but the current weakness in sterling, in addition to yield differential and reduced competition, presents opportunities for investors willing to enter the market in such conditions.
So while investment in Scotland remains subdued, overseas capital has emerged as a prominent feature of the investment landscape of late.
Foreign money has accounted for 38 per cent of office purchases so far in 2016, according to CoStar’s research of investment deals. Most notably, Dutch pension fund APG recently entered negotiations to take a 75 per cent stake in TH Real Estate’s £1 billion St James Centre scheme in Edinburgh.
By contrast, domestic investors, and institutions in particular, have been net sellers of Scottish property assets over the last 18 months.
The largest investment deal of the quarter was German real estate investor TRIUVA’s purchase of Waverleygate in Edinburgh from M&G Real Estate for £63m.
The second largest was FORE Partnership and Kier Property’s acquisition of 50 Bothwell Street in Glasgow, also from M&G Real Estate, for £23.25m.
In the only other transaction above £10m, Henley Ark and Cheyne Capital purchased the Old Mill student accommodation scheme in Dundee from Crosslane, for £11m.
CoStar added that in spite of the Brexit-induced slowdown, investment in Edinburgh offices reached £466 million over the last 12 months, its highest level since the financial crisis, while in Glasgow, investment volumes have slipped to £281m since a record high in 2015. Aberdeen investments fell by 93 per cent over the last year, to £23m.
Ediston Property said in an update to the markets that there had been sufficient transaction activity in the UK over the last quarter for Knight Frank to remove the ‘Brexit caveat’ it included within the June 2016 valuation.
As at 30 September 2016, Ediston owned investment properties with a value of £181.4 million and held £10m in cash. The group’s net asset value (NAV) per share has fallen 0.57 per cent to 107.7p.
A total of 15.4 per cent of Ediston’s portfolio is in Scotland, including the Tesco Bank site in Glasgow.
The directors said that property values were under downward pressure following the vote, but that quarter valuations have on average fallen less than was first feared, however it noted investor caution had led to an increase in the value of low-risk assets and some “significant” mark downs on those with short leases, credit risk and voids.
“The volatility that will occur as the Brexit process proceeds will ensure attractive buying opportunities will continue to appear,” noted the directors.
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