US-based investors have poured over £500m into Scotland’s commercial property market in the 18 months since the pandemic began, 20% more than in the previous year-and-a-half and eclipsing the amounts deployed by other major overseas buyers, according to commercial real estate research and analytics firm CoStar.
The retail sector has garnered the most interest, aided by a major UK acquisitions drive by San Diego-headquartered real estate investment trust Realty Income. The firm’s recent purchases include Hermiston Gait Retail Park in Edinburgh from Ediston and BauMont Real Estate for around £85m and Garthdee Retail Park in Aberdeen from M&G Real Estate for nearly £33m, with both deals reflecting yields of circa 6.5%.
Grant Lonsdale, senior market analyst at CoStar, commented: “Despite the retail sector’s wider struggles, both domestic and overseas investors remain encouraged by retail parks and food stores, which continue to demonstrate resilience and often offer long-term, inflation-linked rental income secured to strong covenants like B&Q and Tesco.”
Meanwhile, the office and industrial sectors each attracted around £120m of US capital in the 18 months to September. New York-based LCN’s recent purchase of the life sciences-oriented Alba complex in Livingston for around £47m (a 5.8% yield) helped to lift US spending on offices, which fell 13% from the previous 18 months, reflecting caution among some American buyers around the more traditional office sector as working from home persists.
US investment into Scottish industrial properties more than doubled in the same period, however, following sizeable acquisitions by Mileway and Blackbrook Capital, which are backed by private equity giants Blackstone and Eldridge, respectively.
Mr Lonsdale, added: “While modern distribution warehouses remain highly prized by investors due to strong tenant demand and low supply, multi-let industrial estates in the best locations are also sought after by income-hungry buyers seeking opportunities to grow rents and values.”
Earlier this year, Beverly Hills-headquartered Kennedy Wilson acquired Stenhouse Mill Wynd, a 63,000 sq ft industrial estate near Edinburgh city centre, for £8.5m, reflecting a 5.5% yield and a 54% uplift on the price initially sought by vendor Telereal Trillium.
Investors from Germany and South Korea were the next most acquisitive overseas buyers, each spending around £200m on Scottish commercial properties in the past 18 months. In contrast to their American counterparts, German and Korean investors have continued to target prime office assets, which accounted for 80% and 67% of their respective acquisition totals between April last year and September this year.
In one of last quarter’s biggest deals, Union Investment purchased Princes Exchange and New Uberior House in Edinburgh for almost £79m, a 5.3% yield. The Hamburg-headquartered investor had been in talks to acquire the interconnected buildings in the Scottish capital’s Exchange district from MAS Real Estate since January, with completion of the transaction held up by travel restrictions.
Mr Lonsdale concluded: “From conversations with our clients and by monitoring the investment market, we expect to see both US and German investors make some significant purchases over the coming months, helped by the loosening of travel restrictions”.