The Scottish commercial property investment market rose by 24% last year, with around £1.3bn invested in the sector.
Lismore Real Estate Advisors’ analysis stated that while the emergence of the Omicron variant and the return of restrictions continues to bring challenges, fourth quarter trading remained strong at £520m, up 27% on the same period in 2020.
Several deals that drove this, including the £32.2m sale of Sainsbury’s at Inglis Green Road in Edinburgh by Inglis Property to Urbium Capital Partners, the off-market sale of Scania at Eurocentral by West Ranga Property Group to DVS Property for £10.7m, and the £58m sale of Exchange Place One in Edinburgh to CBRE Investment Management.
Lismore predicts that the top three performing sectors in 2022 will be retail warehousing (36%), distribution (28%) and multi-let industrials (17%).
Although prime yields have begun to harden, retail warehousing still offers some good value given the rapidly changing retail market and strong occupational demand, according to the property advisor.
Support for foodstores has fallen by 6%, while the office sector was the most poorly backed by respondents to its research, with concerns over capital expenditure requirements and future working habits being mentioned as headwinds for the sector.
Around 69% of respondents in Lismore’s research expect to be net buyers in 2022, with 21% neutral.
Investment managers and property companies look to be most acquisitive, with 83% and 73% respectively anticipating they will be net buyers in 2022. Just over half of funds and private equity respondents expect to be net buyers.
Only 10% of respondents expect to be net sellers, suggesting another year of limited stock and inevitable pricing pressures for the best opportunities.
Chris Macfarlane, director of Lismore, commented: “The wall of overseas capital chasing stock continues and pricing reached pre-pandemic levels in the food stores, logistics and retail warehousing sectors.
“The only sector really offering ‘value-add’ pricing is the shopping centre market where risk remains but the best assets are starting to find their level, at between 50 to 90% discount to purchase levels.”
James Dunne, head of UK transactions at abrdn, said: “The pandemic has highlighted the benefits of having a diversity of income and sectors within a portfolio.
“The breadth of the alternative sectors provides an increasingly significant part of the real estate investment market, with the hotel sector offering an interesting pattern in durability – however, this recovery trend has been narrow and will continue to be driven by the best assets and the best locations significantly outperforming the market.”
He added: “The extended stay market (apart-hotels and serviced apartments) was already growing and the ability to pivot from more lucrative short term stays to a longer term model provided certainty of income and meant that the sector showed very strong resilience throughout the worst of the pandemic – and therefore a strong rationale to invest both for the protection in the downside – but also the predicted performance in a more normal market.”
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