RETURNS on Scottish commercial real estate are continuing to push ahead of the UK average, according to a new report.
Data released by leading property consultant CBRE reveals that Scottish commercial real estate achieved a total return of 1.7% in the third quarter of 2018. This is a rebound from the 1.4% recorded in the second quarter, and a return to the same rate of return in Q1.
While there remains a 120 basis point difference between the annual total returns, with Scotland at 7.0% compared to the UK’s 8.2%, three sectors in Scotland – offices, retail and alternatives – are now ahead of the UK as a whole. This is most noticeable in high street retail with annual total returns of 6.4% in Scotland, versus 4.0% in the rest of the UK.
The one sector bucking the trend is industrials, where superior rental performance in London and south-east England continues to fuel exceptionally strong returns. This has helped push the UK industrial total return to 19.3% for the 12 months to the end of September, compared to 8.4% for Scottish industrials.
The main surprise this quarter in Scotland was a marked improvement for the retail sector. Total returns increased to 1%, a rise of 0.7% from Q2. However, the sector still has the lowest overall return in Q3, behind offices (2.2%), alternative property (2.4%) and industrials (1.9%).
For the third quarter in succession, the annual Scottish all property total return was virtually unchanged at 7%.
Individual sectors have shown more change, in particular offices and industrials. Office annual returns were the only ones to improve over the quarter, rising to 8.6% for the year to the end of September.
In contrast, industrial returns fell slightly to 8.4%, with the alternative property remaining the only sector with double-digit returns over the year (12.6%), well ahead of the weakest performer retail, at 4.0%.
Martyn Brown, a director in CBRE’s investment team, was encouraged by the results. He commented: “Unsurprisingly, the office sector was the best performing asset class in Scotland during Q3, driven by the strong capital value growth achieved in several noticeable investment sales.
“International buyers continue to be active in Scotland, attracted by the softer yields and higher returns on offer when compared to similar investment deals south of
There is also now a marked difference between the performances of offices across Scotland’s three largest cities. Glasgow offices, at 7.6%, are positioned close to the all property total return, while Aberdeen offices saw a 4.1% return, continuing the recent period of improving quarter-on-quarter returns.
For the retail sector, returns in Aberdeen have technically slipped back into negative territory with an annual return on -0.3%. For Glasgow and Edinburgh, returns are higher, with Glasgow seeing the best performance of 8.2%, just ahead of its office returns.
A total of £505 million of stock was transacted in Scotland during the third quarter of the year, down from £578m achieved in Q2. This now sits at a similar level to the volumes achieved at the same time in 2017.
Overall, there was £1.77 billion spent across Scotland during the first nine months of 2018, a 27% rise from the same period in 2017. With over £670m, the office sector has seen more money directed towards it than any other commercial sector. Meanwhile, more than £300m has been spent on retail warehouses.
Source: The National