Scottish industrials bucks the overall trend in commercial property returns

The latest Scotland Property Quarterly report from leading property consultant CBRE shows the momentum from the first three quarters of 2014 which slowed in Q4 has continued to ease in Q1 of 2015.  With the notable exception of industrials, all sectors in Scotland saw returns edge downwards, with the biggest shifts seen in offices and high street retail.

However, with all property Scottish total returns in the twelve months to the end of Q1 2015 at 11.9%, Scottish commercial property is still generating strong returns for investors.

Industrials was the only sector to see returns improve in Q1, an outperformance that has been driven by strong capital growth of 2.5% over the quarter and a 1.5% of rental value growth over the same period. In contrast both offices and retail have seen capital growth rates level off during this same quarter.

Retail was by far the weakest of the three main sectors as a result of a large reduction in the capital growth rate, which was just 0.2% in Q1 2015, compared to 1.0% in Q4 2014. Total returns in Scottish retail were 1.6% in the first quarter of this year, a stark contrast to the 2.4% return of the previous three months.

Offices total returns also slipped in Q1 2015, with a return of 2.3% compared to 3.0% in Q4 2014. However, on a city level, office markets in both Glasgow and Edinburgh are showing signs of improvement and are now outperforming Aberdeen, which as recently as six months ago was one of the strongest performers. This is a trend which is likely to continue over the coming quarters.

Campbell Docherty, senior director at CBRE National Capital Markets, said: “Whilst the Scotland Property Quarterly analysis for Q1 reports a slowdown in activity in investment volumes in Scotland, we believe this accounts for a lack of investment product and not a slowdown in demand.

“There were key deals transacted in all sectors, notably in office with the sale of Aurora, 120 Bothwell Street, Glasgow for £72m and Edinburgh Quay 2 for £24.5m.

“Shopping centre activity was bolstered by the sales of both the Sauchiehall Centre and Clyde Shopping Centre in Glasgow for a combined total of £115m and a strong institutional interest in Prestonfield Industrial Estate, Edinburgh, delivered a sale yield approaching 6%.

“We expect to see an increase in deal activity in Q2 with current large lot size offerings either under offer or recently placed on market. Princes Street in Edinburgh has three prime retail holdings all on the market with lot sizes totalling £50m and shopping centre and retail warehouse activity has been dominated by the recent marketing of Eastgate Centre, Inverness and Forge Retail Park, Glasgow.

“The office sale of Tanfield, Edinburgh in April and the market offering of 1 to 3 Atlantic Quay, Glasgow, in May will contribute to considerable Scottish investment volumes in Q2 and into Q3 2015.”