Alasdair Steele, head of Scottish commercial at property consultants Knight Frank looks at the prospects of outside investment returning to the market north of the border

Scotland must be sick of elections: six trips to the polls in less than three years – it’s no wonder commentators were warning of election fatigue in the build up to the snap general election in June.

After the Scottish Government hit pause on a second independence referendum, the good news for those dreading another ballot is it seems we won’t be heading back to the polls again for some time – unless another snap UK election is in the offing…

The “reset” of the timetable on indyref2 could be particularly welcomed by one group in the property industry: UK institutions. It’s a well-known fact that they have cooled on Scotland in recent years. Their share of spend on commercial property across the country has shrunk from a peak of around 58 per cent in 2013, to a low of 6 per cent last year.

In fact, 2014 saw them spend a decade-high figure of £1.29 billion in Scotland, 44.5 per cent of the annual total, compared with £110 million in 2016 – a decline of 91 per cent in just a couple of years.

While it would be facile to say that there’s one reason behind this decline, political uncertainty has undoubtedly played a prominent role. Many UK funds have a clear geographical remit and, if Scotland was to go its own way, this would cause the funds issues – mostly in terms of investing outside of their remit. There are also the inevitable well-trodden questions around currency, where businesses would base themselves, and the like.

Yet, there are signs their reticence towards Scotland is softening. Occupier markets are strong, in the main, and the yield differential compared to other UK markets appears attractive.

Of course, it’s fair to say that it won’t be a case of flicking a switch and the UK funds come back – it will be gradual and based on an assumption there’s no unforeseen bad news on the horizon. They’ll dip their toes back in the market by looking at prime locations, such as Glasgow and Edinburgh, and long-dated income in the first instance, and then start searching beyond. There are already some signs that this is beginning to happen.

That said, it won’t necessarily be an easy return for many of them. In their absence, others have seen an opportunity: Scotland’s commercial property market has opened up to investors from across the globe. Last year nearly two-thirds, £1.17 billion, of the capital spent in Scotland came from overseas – with German, American, and Danish investors among them.

New sources of investment are emerging all the time: Chinese, South Korean, and South African buyers are just a few of the recent parties to express an interest. Not only are these international investors looking at the core markets of Glasgow and Edinburgh, but they’re increasingly looking to secondary assets: a private overseas investor’s recent purchase of a prominent part of Perth High Street underlines their willingness to look beyond the major conurbations.

Anyone waiting for uncertainty to end, it seems, will be kept waiting for a while yet; but the events of the last couple of months have injected a certain amount of stability back into Scotland, for now at least. Whether this will precipitate increased interest in Scotland remains to be seen, but the early indications are that UK funds are beginning to look north of the border once again.