Scottish property investment rebound: The deals and buyers that have fuelled 2024's turnaround

Total investment volumes jumped by 53 per cent to £383 million in the first quarter of 2024, up from £251m in the same period last year, according to the latest analysis from commercial property consultancy Knight Frank. Retail property accounted for 56 per cent of investment volumes, largely because of the sale of Aberdeen’s Union Square shopping and leisure centre in a bumper £111m deal. Hotels accounted for another 17 per cent and offices represented about 15 per cent.

That sale of Union Square also helped Aberdeen record its best first quarter in the last five years, with £140m of deals. Glasgow saw a strong rebound from last year as well, up from £49m to £109m - an increase of 123 per cent. So far this year, listed property companies have accounted for 43 per cent of investment, with international investors at 30 per cent - well below their five-year average of 57 per cent - and private capital representing 27 per cent, according to Knight Frank.

The firm’s latest statistics coincide with first-quarter figures from industry peer Lismore Real Estate Advisors, which are likely to be based on a different methodology and deal flow but paint a very similar picture. They show that transaction volumes in the first quarter totalled £431m, up 33 per cent year on year, indicating a positive start to 2024.

Lismore said deal pricing was showing “signs of stabilisation”, with some sectors experiencing upward pressure. Logistics and multi-let sheds remain strong, with prime yields expected to slightly harden, it added.

The firm highlighted several transactions in the opening three months of the year, including the acquisition of Union Square in Aberdeen, DS Properties’ purchase of BP’s North Sea headquarters for £16m, ICG’s acquisition of Tesco in Corstorphine, Edinburgh for £43.9m and an overseas private family office’s purchase of the Omni centre in Edinburgh for a reported £64m.

Lismore associate Chris Thornton said “key themes” were emerging in various sectors, with the industrial property areas of logistics and multi-let sheds continuing to lead the way. Strong demand and limited supply are driving “genuine rental growth and underwriting investment rationale”, he noted.

He said: “There are early signs of an increase in fund activity focusing on the prime retail, retail warehousing, hotel and industrial sectors. Corporate mergers and acquisitions are increasing, leading to motivated sellers and portfolio realignments. Notably, Aberdeen is experiencing improved liquidity, with a significant uptick in office and industrial volumes attracting yield-hungry buyers.

“Buyer activity increases, with funds expected to be net sellers but acquisition activity rising for the first time in two years, focused on ‘sheds and beds’ but with high street retail and retail warehousing attracting attention. Private equity is seizing opportunities, such as Lone Star’s acquisition of Union Square in Aberdeen.”

The deal for the Union Square shopping centre, one of Scotland’s largest urban malls, was a standout from the first quarter. Hammerson, the UK-listed retail ­property giant, sealed an unconditional contract for the sale of the vast 52,000-square-metre shopping and leisure complex to an affiliate of US investor Lone Star.

Union Square is one of several prominent Scottish shopping centres to change hands in recent months. At the tail end of 2023, The Centre in Livingston was acquired by UK commercial property and investment companies LCP and Evolve Estates, both part of M Core, for an undisclosed sum.

Just last week it emerged that Omni, the leisure and entertainment complex a stone’s throw from Edinburgh’s new St James Quarter, had changed hands in another major property investment deal. The venue, which houses several bars and restaurants, a Vue cinema and a Nuffield health club, was acquired by international investment group Triple B on undisclosed terms. Triple B was founded by Thomas G Bata, Thomas A Bata and Charlotte Bata-How, family members of the European Bata Shoe business. Omni’s vendor, investment firm Nuveen, was advised by JLL and an asking price of £65m had been flagged.

Thornton added: “Overall, Scotland’s commercial property market shows resilience and recovery, offering various investment opportunities across sectors.”

Alasdair Steele, head of Scotland commercial at Knight Frank, described 2023 as “challenging for commercial property across the world”, with interest rates rising sharply after a decade of historic lows and the economy adjusting to a new post-pandemic norm.

“While there was some mixed inflation data moving into 2024, a cautious sense of optimism has begun to emerge,” he said. “It is encouraging to see that beginning to be reflected in investment volumes. Although we are not quite back to pre-pandemic levels, there is a noticeable difference between now and this time last year as macroeconomic conditions settle, and buyer and seller expectations move closer together.

“The particularly good news is that it looks like there is still plenty more to follow this year - international investors weren’t as active in the first quarter, but are still very interested in Scotland; there are several large office assets on the market and there is a strong constituency of potential buyers. All things being equal, we are moving in a more positive direction for the year ahead.”

Figures released at the start of this year showed that commercial property investment volumes in Scotland fell by a third during 2023 to just under £1.5 billion amid “ongoing economic uncertainty”.

Scottish property investment showing 'promising signs of improvement' amid pool of cash