Scotland sees a surge in private commercial property investment

Scottish commercial property attracted more investment from private overseas investors than France, Japan and South Korea in 2018, according to the latest edition of Knight Frank’s Wealth Report.

The firm’s analysis found that total investment from internationally-based ultra-high-net-worth individuals* (UHNWIs) in Scottish commercial property was £283.6 million ($376.3 million). The findings will be discussed this morning (March 22nd) at a breakfast event at Edinburgh’s The Principle.

Scotland placed eighth globally for cross-border private capital investment in commercial real estate, behind Canada (£580.4 million/$770 million) and ahead of France (£271.4 million/$360 million), Japan (£82.9 million/$110 million) and South Korea (£7.5 million/$10 million).

Total private investment in Scottish commercial property, which includes UK buyers, was £760.4 million in 2018, a 26.3% increase on 2017. Private investors represented around 30% of the more than £2.5 billion that was invested in commercial property in Scotland – including offices, retail, industrial and specialist property – during a resilient 2018.

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

Knight Frank’s Wealth Report found that private investors are becoming an increasingly important force in the global real estate marketplace. This year’s analysis revealed that 31% ($289 billon) of all global commercial property transactions in the 12 months to Q3 2018 involved private capital.

It also found that 21% of private wealth is held in real estate investments of some kind (excluding primary residences and second homes). UK commercial real estate is the most popular destination for cross-border transactions by private capital, with $8 billion invested in the 12 months to Q3 2018. The US was second ($7.4 billion) and Germany third ($4 billion).

William Mathews, head of capital markets research, Knight Frank, said: “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% of UHNWIs plan to invest in commercial real estate in 2019.

“Increasingly we are advising our private clients not only on prime office, retail and hotel assets but also strategic investments in growth sectors such as urban logistics, leisure and specialist operating assets including student housing and multi-housing. Overall, property as an asset class remains high on the agenda of private investors. The UK is the number-one home for cross-border private capital as it continues to exhibit solid fundamentals including tenant demand, liquidity and transparency.”

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