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Wealthy overseas investors snap up Scottish property

Scottish commercial property attracted more investment last year from wealthy overseas investors than France, Japan and South Korea, according to new research.

Releasing its latest Wealth Report, property consultancy Knight Frank said its analysis had found that total investment from “internationally-based ultra-high-net-worth individuals” in Scottish commercial property totalled some $376.3 million (£283.6m) in 2018.

The figure for France was about $360m, Japan came in at $110m, while South Korea was just $10m. Scotland was placed eighth globally for cross-border private capital investment in commercial property, such as offices, shops and industrial sites, behind Canada at $770m.

The UK as a whole, including Scotland, topped the overall rankings at just over $8 billion, followed by the US at $7.4bn. Knight Frank said that total private investment in Scottish commercial property, which includes UK buyers, was £760.4m last year, a 26.3 per cent increase on 2017.

Private investors represented about 30 per cent of the more than £2.5bn that was invested in commercial property in Scotland during a “resilient” 2018, the firm noted.

Recent high-profile deals involving private investors have included Jenners’ historic department store on Edinburgh’s Princes Street, which was bought by a Danish investor for £53m, while the property company of Inditex fashion group founder, Amancio Ortega, acquired 78-90 Buchanan Street in Glasgow for £31m last year.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “Commercial property in Scotland offers solid returns for investors – particularly individuals, who can expect to see the value of their capital eroded by inflation if they keep it in the bank.

“There is a strong appetite for investment outside of London and Scotland is perceived as being relatively good value, even within the UK.

“Both Glasgow and Edinburgh offer compelling supply-demand dynamics and attractive yields. All things being equal, we expect that to drive rental growth over the next couple of years and, therefore, the potential returns to landlords.”

William Mathews, head of capital markets research at Knight Frank, added: “We expect that the appetite from private investors for commercial property will continue to increase as the number of wealthy individuals grows.

“Our latest Wealth Report shows that 21 per cent of ultra-high-net-worth individuals plan to invest in commercial real estate in 2019.”

By Scott Reid

Source: Scotsman

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Scottish commercial property market outperforms UK in several sectors

SCOTLAND’S offices, retail and alternatives property markets all significantly outperformed the UK markets in 2018, according to data released by leading property consultant CBRE yesterday.

Their research revealed that the annual Scottish all commercial property total return for 2018 was 5.6%, only slightly lower than the UK all property return of 6%.

Industrials in Scotland also had a strong end to the year, achieving the highest return of the three main sectors.

Office and industrials returns in Scotland have increased year on year, with offices achieving 8.2% compared to 5.9% in 2017, with industrials increasing from 7.9% to 8.6%.

Offices were 2% ahead of the UK figure of 6.2%, while retail returned 4.7% compared to the overall UK figure of minus 1.1%.

Alternatives continued to be the best performing sector in Scotland, and the only one to achieve double-digit returns in 2018, with 10.6% compared to the UK’s 7.5%.

CBRE said that given the current challenges facing the retail sector, it is unsurprising that at year end the outlook remained subdued.

Compared with performance for the whole of the UK, Scottish returns have been more resilient in the final quarter of 2018. At the all property level, the picture is very similar –with UK returns down by almost 1.5% and Scottish returns unchanged.

During the last quarter of the year, £642 million of stock was transacted in Scotland, demonstrating a strong final quarter, and bringing the annual total to £2.49 billion in 2018. This is broadly in line with the £2.5bn achieved in 2017.

The retail sector total was boosted by the controversial sale of Fort Kinnaird Retail Park, located on the eastern edge of Edinburgh, which was acquired from The Crown Estate by M&G Real Estate for £167.25 million, with none of that sum accruing to the Scottish Government despite the Crown Estate being devolved.

David Reid, associate director of CBRE, said: “It’s great to see the industrial and logistics sector in Scotland performing strongly again during 2018 with sharpening yields and increasing rental and land values within prime locations.

“With this backdrop we are seeing increasing developer appetite for speculative schemes and there are a number of occupier pre-lets on the horizon during 2019.”

By Martin Hannan

Source: The National

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Commercial property: High street challenges need addressed

The currently volatile environment for UK retailers presents a significant challenge to the commercial property sector. Along with the estimated 85,000 jobs lost in UK retailing in 2018 is the worrying rise in empty commercial units.

Figures published in the Scottish Retail Consortium-Springboard Footfall and Vacancies Monitor show hat one in eight high street shop premises lay vacant last month, with a 12 per cent town centre vacancy rate in Scotland, up the 11.1 per cent recorded last October.

Steps are being taken across the nation to repurpose some of these vacant premises for residential, hotel, leisure or community use.

However, UK retailers must also continue to repurpose their businesses to ensure they are relevant to the changing nature of consumer demands.

Many of those which managed to avoid insolvency last year are now embarking on store closure plans and rationalising their portfolios. The trend of traditional retailers extending their online offering also continues, with some smaller stores diversifying by installing convenient customer options such as Amazon lockers and becoming click-and-collect points for larger retailers.

Technological advances, including the use of mobile payment, scan and payment checkout apps, are also making the sector more efficient, while further progress in areas such as VR and AI offers an additional strand of support.

In spite of these positive developments, there is no doubt that many of the larger retailers will continue to struggle with the size and cost of their property portfolios. Debenhams is continuing discussions with its lenders and is not ruling out a company voluntary arrangement, while the new management at Marks and Spencer is promising dramatic changes in range, style and customer focus.

Meanwhile, other big high street names seek to negotiate reduced rents with their landlords to keep themselves trading. The changing nature of the marketplace requires retailers to make bold decisions to entice consumers and leverage value from their physical premises.

Apple and Selfridges are both successfully doing this by making shopping at their outlets an experience. Selfridges credits its successful Christmas trading period to the staging of festive events which drove people into its stores, and Apple delivers added value for customers in its premises by holding free events.

The progression of some online retailers moving to a bricks and mortar model could also make a positive impact on the commercial property sector. Amazon Go is reportedly looking at expanding its app-based convenience store brand into London with the potential of Amazon Books stores opening in the UK.

Physical premises supported by a strong online presence point to the future direction of travel in retailing. While we expect more casualties in the year ahead, the changes that are currently being implemented provides some comfort to commercial property landlords as retailing continues its challenging evolution.

The UK retail market is one of the most dynamic in the world and is the biggest employer in Britain; it is also one of the most adaptive to change. But landlords and tenants must act quickly to stem the tide of store closures and declining footfalls.

Source: Scotsman

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FCA keeps close eye on UK commercial property funds

The UK financial watchdog is seeking daily updates from commercial property funds following significant withdrawals from the sector in December.

The UK Property sector saw £315m in outflows during December. It is seen as particularly vulnerable to any problems from Brexit, as international buyers are an important source of demand for commercial property.

At the same time, investors have become increasingly concerned about the weakness in the retail sector. Landlords are being forced to accept non-commercial terms from tenants in difficulties.

The FCA is taking an interest because the last time the sector saw significant outflows, the funds had to stop investors redeeming their shares. Investors couldn’t get their capital out for a period of time. This happened in the wake of the Brexit vote in 2016 and during the global financial crisis in 2008. The funds ultimately reopened and investors could trade as normal.

The largest funds, including those from M&G and LGIM, hold property shares and cash to help them meet redemptions. They would otherwise have to sell off large buildings quickly, which can be difficult. They may also need to sell their prize buildings – for which there is the strongest market – while hanging on to their existing, weaker buildings.

Investors using investment trusts to access the commercial property sector aren’t affected by the problems.

Source: Your Money

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Commercial property investment in the north falls to five-year low

COMMERCIAL property investment in the north fell to its lowest level since 2013 last year, according to a new industry report.

The latest Lambert Smith Hampton bulletin shows that the £176.6 million investment volume recorded in 2018 was 48 per cent lower than the previous year and 12 per cent down on the 10-year average.

After a slow start to the year, the quarterly activity exceeded £50m for the remainder of 2018, boosted by the beleaguered retail sector.

Retail transactions accounted for almost half of the activity in 2018, with notable deals including the Belfast sale of 40-46 Donegall Place for £16.4m, the acquisition of Bow Street Mall in Lisburn for £12.3m and the purchase of the Newtownards-based Castlebawn Retail Park for £7.2m.

Office activity also picked up in the second half of the year, largely driven by two Belfast deals – the sale of the Metro Building for £21.8m and the £15.2m purchase of Obel 68.

There was further positivity noted within the alternative sector, with car parks, car showrooms, gyms and hotels among the assets that changed hands in 2018.

Private Northern Ireland investors remain the most active and accounted for a third of investment volume last year, while institutional activity increased from 11 percent of volume in 2017 to 21 percent last year.

Notable institutional transactions included CBRE Global Investors £18.4m purchase of the NCP Car Park on Montgomery Street in Belfast and Corum Asset Management’s purchase of 40-46 Donegall Place.

Martin McCloy, director of capital markets at Lambert Smith Hampton, admitted that the ongoing political uncertainty has impacted on the local market.

“ The challenging political environment has undoubtedly had a negative effect on investment activity over the past two years, with 2017 boosted by the £123m sale of CastleCourt Shopping Centre,” he said.

“While overall the market has demonstrated a level of resilience, there is a lack of supply of good quality assets and investor caution is evident.”

Looking at the year ahead, Mr McCloy said the trend of a quiet first quarter is likely to be exacerbated by the upcoming March 29 Brexit deadline.

“Both buyers and sellers are delaying decisions until there is clarity on the withdrawal agreement or on no agreement, as the case may be.”

“Investment activity is expected to pick up when the terms of the future relationship are clearer and the transition period begins,” he added.

Source: Irish News

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Struggling retail sector dragging down north’s commercial property sector

A WEAK retail sector is dragging down an otherwise strong commercial property market in the north, according to a new report.

The latest RICS and Ulster Bank Commercial Market Survey, covering the last three months of 2018, shows

a decline in demand for retail space, largely driven by changing shopping habits.

The figures further reveal that enquiries for retail property have fallen for the fourth consecutive quarter.

The outlook for the industry is no brighter, with an expectation retail rents will continue to fall over the next three months.

The retail performance is in direct contrast to the overall picture, with the north one of only a small number of UK regions to report an increase in occupier demand (10 per cent of respondents)

Investment enquiries are also reported to have picked up for the first time in nine months.

The encouraging figures were boosted by the industrial and office sectors,which both reported an increase in demand, the former from a net balance of 26 per cent of respondents and the latter, 48 per cent.

The rental outlook is also positive for the next three months, particularly within the office sector, while

enquiries regarding office and industrial assets are on the increase.

RICS Northern Ireland chairman, Brian Henning said the retail figures mar an otherwise positive market performance.

“Changes in the preferences and behaviours of consumers are resulting in a continually challenging landscape for the retail sector,” Mr Henning said.

“On the other hand, sentiment amongst surveyors remains relatively positive in the industrial and office sectors, which is encouraging in the face of uncertainty. Retail aside, expectations for the market are also relatively upbeat considering the landscape.”

Gary Barr, relationship director for commercial real estate at Ulster Bank added:

“The downturn in high street retail has been most keenly felt in our secondary centres. Investor demand for office and industrial has remained robust and prime assets in Belfast city centre are most in demand.”

Source: Irish News

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Sharp rise in property values for UK’s top shared office space providers

The value of property owned by the UK’s biggest shared office providers soared by more than a third last year.

In a sign of the growing flexible workspace market, the value of the industry’s top ten share office providers’ property jumped 35 per cent to £13.6bn last year.

The new data, released by real estate law firm Boodle Hatfield, also underlined the growth in demand for shorter leases among major companies, with the 2017 average length for a new commercial property lease standing at 7.1 years on average, compared to an average of 25 years in 1987.

Rising appetite for such short leases and shared office spaces has driven an increase in traditional property heavyweights experimenting in the sector, with giants such as British Land, Great Portland Estates and Landsec all looking to tap into the fast-growing market.

“Shared workspaces have now gone beyond being a cool place for media and tech startups – they are now a substantial part of the commercial property market in major cities worldwide,” according to Simon Williams, partner at Boodle Hatfield.

Williams added: “The success of WeWork has tempted some of the bigger traditional players in commercial property into the shared workspace market. The expectation is that there is still significant growth in this market in the coming years.”

Source: City AM

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Political uncertainty ‘takes toll’ on Scottish commercial and industrial property market

The “protracted uncertainty” caused by the ongoing Brexit standoff is taking its toll on commercial and industrial activity in Scotland, according to the Royal Institute of Chartered Surveyors (RICS).

The results of the Q4 2018 RICS Construction and Infrastructure Market Survey show that growth in workloads within Scotland’s commercial and industrial segments declined with a net balance of -14% and -7% of respondents reporting a drop in activity, respectively, during Q4 2018.

However, the activity across construction sectors varied, with a net balance of +17% of contributors to the RICS survey reporting growth in private housing workloads across Scotland. Public sector workloads were mixed, but surveyors reported growth in housing with a net balance of 8% seeing an acceleration to growth in public sector housing. Infrastructure workloads also remained steady with a net balance of 8% seeing a rise in workloads over the quarter.

Anecdotal evidence from respondents suggests that the housing market slowdown, coupled with ongoing policy ambiguity related to Brexit, is weighing on business investment decisions. When asked how business enquiries for new projects or contracts have fared in the past three months, 10% more respondents across the UK reported an increase rather than a decrease compared to 24% in Q3. Growth in repair and maintenance work remains modestly positive.

Looking at factors across the UK constraining activity, financial constraints are reported by 78% of surveyors to be by far the most significant impediment to building. Difficulties with access to bank finance and credit, along with cash flow and liquidity challenges, are often cited reasons alongside generally less favourable cyclical market conditions. When asked how credit conditions have changed over the past three months, 20% more respondents report a deterioration rather than improvement.

Shortage of skilled labour continues to pose a significant challenge almost half of respondents in Scotland, particularly with regard to professional services such as quantity surveying. The challenges for the procurement of labour differ by role. Looking at the UK as a whole, 64% of surveyors expressed the view that workers from the EU were not important to their hiring requirements of surveying professionals, and the solution to this issue remains firmly domestic within the training and education areas with 68% of contributors to this survey citing education as the most effective policy tool in addressing the current skills dilemma, compared to 15% for immigration.

However, as the Brexit deadline draws near it should be noted that EU nationals are an important part of the mix particularly with regards to addressing the skills issue in increasing capacity to build on construction sites. With EU nationals accounting for eight percent of the UK’s construction workforce, this accounts for well over 175 thousand people, according to recent RICS figures.

In terms of geographical breakdown across the UK, workload growth is now reported to be decelerating across all regions. London and the Southeast were particularly affected with a lack of growth across the private housing, commercial and industrial subsectors buoyed by positive momentum in infrastructure and public spending. Over the past three months, new business enquiries were strongest in the North (+24%) and weakest in Northern Ireland (-21%). Meanwhile, year-ahead expectations for workloads and hiring are the most resilient in Scotland with net balances of +38% and 31%, respectively.

Tender price expectations over the next twelve months throughout the UK are expected to be squeezed with 51% and 40% more respondents envisaging greater price pressures in the building and civil engineering areas, respectively. The expected increase in tender prices reflects higher input costs and ongoing competitive bidding pressures for businesses. Expectations on industry profit margins have been flat for the second consecutive quarter in Q4 2018.

Jeffrey Matsu, RICS senior economist, said: “The protracted uncertainty engendered by the Brexit impasse is becoming ever more apparent with workloads in the commercial and industrial sectors grinding to a standstill. While the challenges are particularly acute in London, the additional £1 billion in additional HRA borrowing to fund council housing has begun to stimulate activity. The subsequent scrapping of the cap in last year’s Budget has the potential to accelerate this positive trend in the public sector over the coming years.

“Capacity remains an ongoing constraint for activity more broadly, however, with surveyors reporting a ramping up of new hiring even despite a moderation in business enquiries. Continued access to a qualified pool of non-UK workers to support this growth will be as important as ever, particularly for work on construction sites.”

Source: Scottish Construction now

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London remains top gateway city in the world for commercial property investors

London maintained its position as the top city for global real estate investment in 2018, according to research published today by JLL. The report claims that investors continue to favour cities they are familiar with and that have well-established investment markets and high levels of transparency. Well-known, large gateway cities with the world’s deepest concentrations of capital, companies and talent continue to dominate the top ranks. Twelve cities–London, New York, Paris, Seoul, Hong Kong, Tokyo, Shanghai, Washington DC, Sydney, Singapore, Toronto and Munich–have appeared in the top 30 ranking every year for the past decade and account for 30 percent of all real estate investment.

The data shows that total volumes in 2018 were $733 billion, up 4 percent from 2017, the best annual performance in a decade. Cross-border purchases accounted for 31 percent of activity in 2018, close to the 10-year average, suggesting investors still have appetite to buy outside their own markets.

Expectations for 2019

JLL projects that investment activity momentum will be maintained into 2019, as real estate continues to look attractive in comparison to other asset classes. Fundamentals in real estate remain compelling, despite historic low yields, as robust corporate occupier fundamentals across most markets are leading to positive returns. As such, investment activity may slow, but only marginally from its current high, as investors look to hold their real estate exposure and become more selective in the search for assets with strong income growth.

  • The institutional real estate universe will continue to expand, driven by factors such as low volatility, diversification benefits, long-term income and an attractive pricing premium to core sectors. Asset classes such as student housing, senior living and multi-family have continued to attract more institutional money in 2018 and this is likely to continue in 2019.
  • Industrial now accounts for 17 percent of all investment, up from 10 percent in 2009. In contrast, the retail sector has seen less activity as investors adjust their investment approach to reflect changing consumer behavior. In gateway cities, the office sector tends to account for a higher proportion of investment volumes—68 percent in 2018, compared to 51 percent in global volumes.
  • The top 30 will continue to be dominated by the gateway cities in 2019. However, at the edges, investors will consider a widening range of cities in their strategies. Reflecting real estate investors’ risk appetite, secondary cities in established transparent markets, such as Osaka and Atlanta, are likely to attract more attention, as opposed to moving into entirely new countries.

Yields are now at historic lows in most markets across the globe. A sharp correction is unlikely, as there is still a significant weight of capital looking to invest in real estate, and corporate occupier market fundamentals across many markets are positive. This creates the potential for continued income growth. However, in 2019, overall investment volumes are expected to fall approximately 5 to 10 percent below the 2018 total, driven by a slightly reduced appetite from investors to sell, as well as continued selectivity in acquisitions.

Source: Workplace Insight

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Outlook 2019: Commercial property sector preparing for a supply shortage

After a solid 2018 in the commercial property sector, the north has to prepare itself for a supply shortage in 2019, according to Craig Burrow, Leeds Director at Bruntwood.

Speaking at TheBusinessDesk.com’s Outlook 2019 seminar, Burrow said: “From a commercial property perspective it’s been a very good year generally. Leeds particularly is having another strong year in terms of the office market take-up. We’ve also had a great year with the completion of the Platform building in the city centre.

“We’ve seen rents rising, occupancy rising, and investment transactions have hit record highs in Northern Powerhouse cities.”

However, Burrow did say that “one of the biggest challenges” for Bruntwood going into 2019 was the “supply shortage” in the north.

As for the challenges facing Liverpool, Philip Rooney, managing partner at the Liverpool office of DLA, said: “What we don’t have here is top quality office space, and we definitely need more of it. If we have that, then Liverpool will become a far better competitor to other cities.

“This is a fantastic place to live and work, it is absolutely the place to be now, so we need to make sure companies are attracted to come here.”

Despite this, Adam Higgins, co-founder of Capital & Centric, said he believed that the success of neighbouring city Manchester would eventually begin to benefit Liverpool from an office take-up point of view.

He said said: “What Manchester has done in the last couple of years really well is attract office occupiers coming up from London, but the city is now getting to the stage where office space is going to become more and more expensive.

“Companies moving into new builds in Manchester will be paying around £36 – £37 a sq ft, whereas Liverpool is down in the mid twenties. Some businesses just won’t want to pay those rates in Manchester which means they will start to look at Liverpool.”

Tom Kelsall, partner at the Manchester office of DLA Piper, commented on the importance of keeping Manchester’s developments connected and act as part of a community almost.

Kelsall said: “The combined authority have an important job over the next several years to pull together different parts of the area’s communities and make sure Manchester continues to grow. What we don’t want is single assets out in the middle of nowhere that don’t feel connected to the rest of the city.”

Speaking of the office occupier market, Vivienne Clements, director at Henry Boot Developments, said: “We have seen a lot of success this year within the employment scheme Markham Vale. This year we have seen major decisions being made to commit to Sheffield.”

Following the success of Henry Boots Developments this past year, Clements also said they have now “gained an insight across the board” in relations to companies that take up space in studio business park developments.

She explained: “The confidence that Sheffield can take forward is that good quality mid-range companies, who can afford to buy their own building, are attracted to the area. Out of the 16 companies that we’ve brought to Markham Vale, five of those have already expanded further onto the site and one of those expanding is doubling its size just in a five year period.

“We can take confidence in that we have a really strong base and we need to nurture that base because when it comes to a recession they are the backbone that we call all resort back to.”

David Wilton, Chief Financial Officer at Sumo Digital, also spoke about the city’s growing technology sector, and the importance of using this momentum to attract other global tech companies to take office space in Sheffield.

He explained: “It it fantastic that Sheffield is becoming a tech centre of excellence. The foresight that drove the movement away from traditional, old fashioned engineering businesses to a more tech end digital city was great.

“We now need to invest more in tech, and that is about training the right people and attracting the right people to this area.”

Source: The Business Desk