Investment volumes in Scottish commercial property staged a recovery between July and September 2020, buoyed by the best third quarter for office deals in five years, according to analysis from Knight Frank.
The Covid-19 pandemic saw investment levels drop to record lows in Q2 2020, following the introduction of lockdown restrictions and, subsequently, the attachment of material valuation uncertainty clauses to commercial property assets.
However, as the economy began to re-open a number of significant deals concluded between July and September, totalling around £400 million – just shy of the Q3 five-year average of £405 million. Investment in offices during the three months hit £218 million, against an average of £116 million for the same period in the past half-decade.
The biggest deal of the quarter was Roebuck Asset Management and Hyundai Asset Management’s £133 million acquisition of Aegon’s Edinburgh headquarters during July.
In Glasgow, there were several deals including Singapore-based Elite Partners Capital’s purchase of 150 Broomielaw for around £40 million, while the Guildhall building on Queen Street changed hands for around £30 million.
The third quarter also saw the completion of Scotland’s biggest-ever logistics property deal, with the acquisition of Amazon’s main Scottish fulfilment centre near Dunfermline by Knight Frank Investment Management, on behalf of a Korean investor.
Euan Kelly, capital markets partner at Knight Frank, said: “The deals that concluded in Q3 underline the trends we’ve seen take hold over the course of 2020 – a flight to quality assets in prime locations, let to strong covenants. The sale of the Amazon fulfilment centre in Dunfermline also highlights the growing appetite for industrial and logistics property that has emerged since the beginning of the Covid-19 pandemic.
“It is not all doom and gloom – however, the devil is very much in the detail behind the headline figures. If you have a multi-let industrial site, well-placed logistics shed, or a high-quality office building there will likely be a great deal of demand for that type of product. In that respect, property is reflecting what is happening elsewhere in the economy, with the strong getting stronger and vice versa.
“We are still in a continually evolving situation, but there are reasons for cautious optimism. The lifting of material valuation uncertainty clauses will help bring a level of certainty to the commercial property market – some deals cannot be financed when they are attached to an asset valuation – and there is a weight of money looking to be deployed in the right type of investments.
“In a world where there is little in the way of certainty, investors have an insatiable appetite for secure, long-term sources of income – and quality commercial property is in a great position to provide that.”