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‘Dark cloud above our heads in form of Brexit’ after spectacular year in commercial property

SCOTLAND’S commercial property sector rode a financial services wave after Barclays’ Glasgow acquisition but while the “mood music is very positive, ultimately there is a dark cloud above our heads in the form of Brexit”.

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Boost to Scotland’s commercial property market as year comes to an end

MORE than £2.5 billion is expected to have been invested in Scotland’s commercial market by the end of the year, according to one global property company.

Some £2.485bn worth of deals have already been completed, and Savills says this will round up by Hogmanay.

The figures mark a 10% increase on those from last year.

Nick Penny, head of Scotland at Savills and director in the investment team, said: “Regardless of Brexit, the simple economic argument around supply and demand of good quality offices is very compelling for Scotland.

“Our development pipeline and general market confidence was paused for longer than the rest of the UK following the financial crash due to uncertainty around the independence referendum. The result is a critically low level of Grade A office supply in Edinburgh and Glasgowthat makes a strong case for rental growth and new development.

“Highlighting this point is the reality that Edinburgh’s development pipeline is now almost entirely pre-let.

“Low yields in Edinburgh reflect the potential for growth and lack of risk however despite the strong level of investor demand for the Scottish capital, a lack of assets being marketed for sale in 2018 as a result of preceding record levels of activity has hampered overall transaction volumes.”

In 2018, Glasgow saw nearly twice the office transactions than Edinburgh did, and Aberdeen also saw a rise in activity with close to £170 million changing hands.

Penny added this greater spread of investment activity across Scottish cities, rather than specifically in Edinburgh, was notable.

“By investing in Edinburgh, and Glasgow, you are investing in a landlords’ market as supply is so limited and with its World Heritage status there will be restricted opportunity to change this dynamic in Edinburgh.

“Meanwhile, in Aberdeen a gradual improving economy and uptick in office activity being led by the oil and gas sector is piquing the interest of those investors looking for value.”

Savills says prime office yields in Edinburgh are at 4.5%, Glasgow 5.25% and 6.25% in Aberdeen.

Source: The National