Oliver Kolodseike

Colliers’ Scotland third quarter snapshot reports a drop in transactions across all sectors, except for retail warehouses, with a total £360 million invested in the last quarter, down from £600m in Q2. While 33% above 2020 levels, this is around 7% below the corresponding five-year average.

Oliver Kolodseike, director and head of economic research, at Colliers, said: “In line with the rest of the UK, quarterly volumes in Scotland were lower than Q2. However, we should see a pick-up during the final quarter of the year and easily beat last year’s total of £1.4bn.”

Offices and retail accounted for the largest overall shares by value, with £170m transacted in each segment. The retail investment sector experienced its strongest quarter since 2018, and more than twice the five-year quarterly average, with total investments of £153m. Demand for out-of-town retail warehouses, in particular, was strong.

The largest deals in Q3 were Hermiston Gait Retail Park (£80m) in Edinburgh, Glasgow’s 120 Bothwell Street (£55m) and Edinburgh’s Princes Exchange (£46m) and Springkerse Retail Park in Stirling for £22m.

Outside the retail warehouse segment, the only significant retail transaction was the sale of a 12,000 sq ft Sainsbury’s on Aberdeen’s North Deeside Road to a private investor for just under £3m at 7.38% IY.

The outlook for offices remains positive, although the £170m deployed in Q3 is down from £200m in Q2 and 10% below the five-year quarterly average. Edinburgh recorded four transactions, totalling just over £100m, with a further four transactions in Glasgow, totalling to £67m.

The largest transaction was European fund manager Forma Real Estate’s acquisition of the 174,000 sq ft Aurora on 120 Bothwell Street, Glasgow for £55m, at a yield of 8.4%. The building is fully occupied, and its tenants include AECOM, Barclays and BNP.

In Edinburgh, Union Investment Real Estate bought Princes Exchange (£46m at 5.25% IY) and New Uberior House (£33m at 5.25%). The interconnected buildings offer 160,000 sq ft of office space and are fully let to Bank of Scotland.

Beyond the two major cities several smaller transactions were recorded. Alpha Pharmaceuticals bought a 40,600 sq ft office building on Aberdeen’s Ruby Lane for £1m, while Alltmore Properties acquired No 1 Masterton Park in Dunfermline for £2.3m as part of a portfolio and RCI Ochil House acquired Springkerse Business Park in Stirling for £2.2m.

Patrick Ford, director, National Capital Markets, Colliers in Glasgow, added: “There are clear signs of activity picking up with a number of high-profile offices in Edinburgh and Glasgow currently on the market or being prepared for sale. We expect record-volumes to be recorded in Q4.

“Interest continues unabated from overseas investors targeting ‘core plus and value add’ offices in both cities, as well as key European and US investors targeting prime assets in the office and logistics segments. These are all set against the backdrop of international travel restrictions easing.”

It was a quiet quarter for industrial and logistics, after a stellar Q2, which saw almost £200m invested in the segment. Transactional activity in the last quarter amounted to just £15m, which is down from £70m in Q2 and well below the five-year quarter average of £62m.

LXi REIt acquired Tullos Industrial Estate in Aberdeen for £4m at 6.35% IY, Telereal Trillium bought the 30,700 sq ft Catalyst Trade Park in Edinburgh for £3.9m and Shed5 Ltd purchased the 100,000 sq ft Carntyne Industrial Estate in Glasgow for £3.3m at 8.59% IY.

Elsewhere, an asset in Aberdeen was part of a seven-asset portfolio which was bought by Investcorp for £33m and Stenprop has made an off-market purchase that includes assets in Lanark and Bellshill.

In the occupier markets, data from Google’s Community Mobility Reports shows that retail and recreational visits have increased steadily between January and July but have stagnated since August. A recent report from the Centre for Cities found that Glasgow has seen one of the worst declines in footfall across UK cities.

Mr Kolodseike continued: “There is still a large amount of pent-up savings across Scotland and retailers will be hoping that some of this will be spent on the high street. However, market conditions remain challenging as consumer behaviour continues to change. Rents will continue to fall, although rates of decline have slowed recently.

“With more workers returning to offices and leases expiring, we are likely to see a growing momentum across offices in the coming months, with high quality space and ESG commitments key criteria.”

Glasgow recorded its largest offices leasing deal of 2021 so far in Q3, as Student Loans Company agreed a 20-year lease for 75,000 sq ft at Buchanan Wharf. Other notable leasing deals in Glasgow include AECOM taking 20,000 sq ft at 177 Bothwell Street and American Night Productions Ltd agreeing terms on just under 20,000 sq ft at 89 Hydepark Street.

Shell’s move to Aberdeen city centre, sees the energy major take 71,000 sq ft at Silver Fin building, providing space for around 1,000 staff and the Department for Work and Pensions took 20,000 sq ft at Falkirk’s Callendar Square.

The largest leasing deals in the capital include Scottish Prison Service agreeing terms on 21,800 sq ft at 1 Lochside Ave and RSM leasing 7,300 sq ft at 2 Semple Street.

Activity across the industrial sector was subdued in Q3, with only 2.45m sq ft let across Scotland, down by 29% on a year ago. However, demand for industrial and logistics space remains exceptionally strong and with current availability at all time low, at 9.55m sq ft, equating to a vacancy rate of 4%, rental growth is expected to continue over the remainder of the year.

Patrick Ford concluded: “Sustainability has never been in such sharp focus in Scotland and with Glasgow hosting COP 26 the importance of buildings ESG credentials across all sectors is becoming an increasingly dominate narrative in the investment market.”