Signs of strength returning after ‘COVID quarter’
Analysis from Colliers International Scotland Snapshot predicts strong finish to 2020
INVESTMENT volumes in Scotland recovered in the third quarter of 2020 to reach £477 million, having slowed to an almost complete standstill in the preceding “COVID quarter”, when the figure plummeted to £35m, according to Colliers International’s Q3 Scotland snapshot.
Volumes in Q3 represented the highest quarterly figure in a year. While this was still almost 20% below the five-year quarterly average of £564m, Colliers said there is hope for a strong end to the year with pent-up demand driving activity.
Oliver Kolodseike, associate director, Research and Forecasting, at Colliers International, said: “It is positive to see that transactional volumes have started to pick up again and we are now expecting a strong end to the year in Scotland as we recover from the ‘COVID quarter’. An annual investment total of £1.5 billion across all sectors would be a positive result given the nationwide lockdown earlier in the year.”
Colliers’ analysis found that the office and alternative sectors accounted for three quarters of all activity by value, while investment volumes in the industrial sector were 40% above its five-year quarterly average. Unsurprisingly, given the ongoing impact of the pandemic, activity in the retail segment was limited.
There was a renewed interest in Scotland from Asia-Pac investors, accounting for over half of all investment volumes. This included the quarter’s largest deal which saw South Korean Hyundai Asset Management purchase 1-3 Lochside Crescent in Edinburgh for £133.25m. The 247,500 sq ft asset is currently let to insurance group Aegon. This is Hyundai Asset Management’s second Edinburgh purchase in less than 18 months, having already bought Gyle Square in April 2019 for £55m in one of Scotland’s other largest office deals that year.
Looking in more detail at investment in the office sector, performance was relatively strong in Q3 after no notable deals were recorded in the previous three months. A total of £186m was invested during Q3, only slightly weaker than the £196m transacted a year ago and marginally below the five-year quarterly average of £193m. In one of Scotland’s other largest office deals this year, Singaporean Elite Partners Capital bought 150 Broomielaw, the 97,000 sq ft building completely let to Scottish Enterprise, for £40m.
Industrial investment activity picked up during Q3, with volumes reaching £80m, 40% above the five-year quarterly average of £56m. The figure was boosted significantly by the sale of Amazon’s 1,023,000 sq ft logistics centre to Korean-based KB Securities for £66.8m, representing the second-largest industrial deal ever recorded in Scotland. In Glasgow, Stenprop acquired two separate units in Glasgow for a combined £10.7m. St Andrews Industrial Estate, covering 73,200 sq ft, sold for £5.5m, while Excelsior Industrial Estate, occupying 61,000 sq ft, went for £5.2m.
Patrick Ford, director, National Capital Markets, Colliers International in Glasgow, said: “It was good to see this relatively strong investment performance in the industrial sector in Scotland’s two biggest cities in Q3. Overseas investors, particularly those located in Asia, remain very interested in the Scottish industrial sector and large deals continue to be done, despite global economic uncertainty on the back of COVID.”
In Glasgow, the move to bring more residential properties back to the city centre continued. The third quarter’s largest deal saw Legal & General UK BTR forward funding an £81.5m mixed-use regeneration scheme in Candleriggs Square which will include 364 build-to-rent units.
Patrick Ford added: “There is a push towards a more mixed-use environment in city centres, particularly in Glasgow and this is reflected in the scale of investment in the city in Q3. This trend will be accelerated by the impact of COVID which is likely to see people work from home, at least part of the week, for the long term. This will change the nature of the office environment and the make-up of city centres.”
Oliver Kolodseike concluded: “In line with the wider global economy, Scotland’s GDP will take a substantial hit this year. The pace and magnitude of the economic recovery will depend on the lockdown exit strategy, the oil price trajectory and Brexit deal negotiations.”
