By Scott Wright
DEALS worth £612 million were concluded in the Scottish commercial property market in the second quarter, up 104 per cent on the same period last year, as momentum built up during a strong start to the year continued, new research has found.
But Russia’s war in Ukraine and surging inflation has brought caution to some investors, the report from independent property advisor Lismore states.
The £215 million sale of 177 Bothwell Street, a new Grade A office block under construction in Glasgow, was hailed as the “standout” transaction over the period.
The building, which has attracted major tenants such as Virgin Money and BNP Paribas, was sold by Scottish property company HFD Group to Pontegadea, a Spanish investment firm, in one of the biggest-ever regional deals transacted in the UK.
Other deals concluded in the second quarter highlighted by Lismore include the £30.2m sale of the Premier Inn on Glasgow’s Sauchiehall Street, and elsewhere in the city the £16m sale of 123-129 Buchanan Street. The period also saw 124-125 Princes Street in Edinburgh sold for £15.8m.
However, while Lismore notes in its report that the momentum built up following a strong start to the year has continued, it warned that prices will come under pressure for assets “which are not absolutely prime, particularly if they do not meet ESG (environmental, social and governance) credentials.”
Lismore adds: “This is further driven by increased cost of capital and more cautious decision making. UK pension funds and investment managers continue to seek secure long income defensive stock, particularly in the logistics and PBSA (purpose-built student accommodation) sectors.
“There remains a significant weight of capital from overseas investors, particularly from North America, the Middle East and Europe. UK-based property companies continue to be acquisitive in the retail warehousing and industrial sectors, targeting the best locations with strong occupational dynamics where they can achieve optimum pricing/value.”
Lismore director Colin Finlayson said: “There remains a significant weight of capital from overseas investors, particularly from North America, the Middle East and Europe. UK-based property companies continue to be acquisitive in the retail warehousing and industrial sectors”.
, targeting the best locations with strong occupational dynamics where they can achieve optimum pricing/value.”
“There remains a persistent strong demand for PBSA from sector specialists and funds, which is driving pricing. The Scottish BTR (build to rent) market continues apace in Glasgow and Edinburgh although build cost inflation is keeping the supply pipeline in check.
“Aberdeen could see resurgence and be one of the winners over the next six months, with investors seeking out higher yielding stock to balance their portfolios.”
Mr Finlayson added: “After a strong Q1, caution in the market is leading driven by the war in Ukraine, rising inflation and more challenging debt conditions, has caused by investors to pause for breath.”
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