THE logistics and residential real estate sectors of the property market in Scotland have been forecast to “dramatically outperform” in 2021, when Brexit will quickly fade as a major issue after five fractious years, a new report declares.
The dramatic shift to online shopping during the pandemic has led to investors flocking to put money into property in the logistics sector.
Property firm CBRE expects that trend to continue next year, when it predicts that funding will become available in Scotland for investment in additional warehouse space.
According to CBRE, the pandemic has underlined the essential role of the logistics sector in sustaining the flow of goods. It anticipates that the year ahead will see occupiers focus on building more resilient supply chains, increasing capacity and diversifying suppliers to safeguard against future disruptions.
CBRE says £174 million has been invested in industrial and logistics property in Scotland so far this year. While this is currently down on the £185m invested last year, it is expected the 2020 total will reach the five-year average of £200m if deals under offer and likely to conclude before the end of the year are taken into account.
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David Reid, associate director of CBRE Scotland’s industrial and logistics team, said: “We expect 2021 to be another strong year for our market in Scotland. The incredible take-up during 2020 has resulted in critically low stock levels and with continued strong demand we urgently need new speculative development to meet the future needs of occupier requirements. We are working with a number of developers to plug this shortfall in supply.”
CBRE’s 2021 UK Real Estate Market Outlook forecasts that the logistics and residential sectors will achieve significant growth next year, although it notes that a weaker economy will lead to lower and even negative rental growth.
The agent says there has been a reduction in overall real estate investment in Scotland of around 50 per cent this year so far, dipping to £1.06bn from £1.99bn in 2019 amid continuing Brexit uncertainty. Next year, though, it expects investment to rebound to £1.5bn, taking it closer to the five-year average of £2.1bn.
Steven Newlands, executive director in CBRE’s investment team, said: “Demand is expected to come from a wide variety of sources, including sovereign wealth funds, overseas institutions and European funds. Overseas private investors are also expected to be particularly active. “For now, investors are focusing on the winners from the pandemic: the logistics and residential sectors and core assets with near-guaranteed income. In 2021 we expect this to continue until the vaccine is rolled out.”
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The report flags expectations of a gradual recovery in the office market, with investment and take-up expected to steadily recover after a difficult start to the year. CBRE notes that UK office yields will remain stable despite capital values falling by around 11 per cent over 2020 and 2021.
While significant doubts remain as to whether the UK and European Union will agree a trade deal before December 31, CBRE expects the Brexit issue to gradually fade. It said next year will see a recovery in the commercial property investment market because of record low interest rates and an “abundance of capital looking for a return”. This year the market has stalled amid the uncertainty caused by the pandemic, as restrictions have limited the ability of investors to travel to inspect sites. But Mr Newlands said: “These concerns, as well as the restrictions, will ease over time for some asset types as the occupier market recovers.”
CBRE hailed the resilience of the residential market, and expects it to perform strongly in 2021, supported by “tax incentives, resilient demand and lagging supply.” Mr Newlands said: “Despite Covid-19 restrictions, investment into the residential sector was strong in 2020. There is a high level of equity targeting the build-to-rent sector and lending also remains highly competitive.”
Miller Mathieson, managing director of CBRE Scotland and Northern Ireland, said: “In Scotland we will have many opportunities and challenges in common with the rest of the UK. In particular we will see significant activity in the logistics sector as values improve and new speculative development becomes viable. This is the favoured sector of investors and Scotland still has major growth potential. Similarly, I think we will, at last, see Scotland embrace all the different forms of residential investment around affordable housing, build-to-rent and co-living.
“Our biggest challenge will undoubtedly be in the retail sector with the continued growth of online sales and the increasing number of CVAs and administrations.”
By Scott Wright
Source: Herald Scotland
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