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More than half of investment in Edinburgh and Glasgow commercial property now coming from overseas

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JLLThe proportion of international investment in Scottish commercial property increased dramatically in 2015 despite overall investment volumes falling from £3.2bn in 2014 to £2.2bn in 2015, according to research produced by JLL.

Specifically in 2015, £1.3bn (59 per cent), of commercial property investment into the key markets of Edinburgh and Glasgow came from overseas, compared with £1.6bn (49 per cent) in 2014.

During the same period, the proportion of UK money invested in Edinburgh and Glasgow commercial property dropped from 51 per cent (£1.6bn) in 2014 to 41 per cent (£900m).

The higher proportion of international vs domestic investment in Scotland is not reflected in any other UK region, outside of Central London, where the percentage of domestic investment was 35 per cent in 2015.

In 2015, 57 per cent of all investment in UK commercial property came from the UK, and 43 per cent came from international investors. In the same period, domestic investors made up 82 per cent of all purchases in Manchester, and 97 per cent of all purchases in Leeds.

JLL’s research found that:

  • American investment in Scotland spiked in 2015, accounting for 18 per cent (£396m) of all transactions, compared to a 4 per cent share in 2014 (£128m). This is a rise of £268m.

  • Compared with 1 per cent (£32m) in 2014, Middle East investors were involved in 7 per cent (£154m) of all Scottish investments in 2015.

  • The office sector proved to be increasingly popular accounting for c.55 per cent of volumes – up from 38 per cent in 2014.

    • The changing profile of property investor in Scotland is due to a number of triggers, according to JLL:

    • UK Institutional caution – setting aside a general easing in weight of money, the continuing uncertain political landscape is causing the Funds to go “Scotland – light”. There is no wholesale selling but Funds are reticent to be over exposed to Scotland in terms of their overall portfolio weightings.

    • Global movement of Capital – influences such as political instability in the Middle East, Russian economic crisis and Asian market jitters are all adding to the flow of capital coming from these regions/countries trying to find more stable markets such as the UK.

    • London becoming increasingly expensive - hence the larger regional markets in the UK including Edinburgh and Glasgow have looked like offering reasonable value. This is particularly so for more mature/sophisticated investors (e.g. North American Private Equity and German Institutions) who are very au-fait with the regional markets.

      • Examples of deals that would have traditionally been secured by UK institutions but have gone overseas include 180 St Vincent Street, Glasgow and 125-126 Princes Street Edinburgh – bought by US venture capitalists Northwood Investors and 74-77 Princes Street, Edinburgh – bought by German group GLL.

      Chris Macfarlane, Director in Capital Markets said: “As the depth of Fund buyer has thinned, pricing has softened and our key markets are looking like fair value. The vacuum left has been filled by a range of investors (particularly overseas) which is positive.

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