The share of overseas investment in Scottish commercial property has doubled since the last financial crisis, according to Colliers International.
The real estate advisor said finance had flooded in to the country from Middle East and Asian investors seeking stable assets and from many in mainland Europe in search of value for money.
Colliers’ report, Regional Revolution III, Rise of Cross Border Investment, 2020, compared inflows to the market between 2002 to 2006 with the period from 2014 to 2018.
Overseas investors’ share of the Scottish market grew from 19% to 41%. Investment increased from less than £250 million in 2002 to £1.25 billion in 2016.
Oliver Kolodseike, an associate director with Colliers International, said: “Looking at what attracts overseas investors to Scotland, the country benefits from fairly competitive pricing, while still being a transparent and relatively stable market, compared to other parts of the UK and Europe.
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“It also enjoys strong occupational demand in the office sector, has an educated workforce, leading universities and low unemployment.”
Colliers reports that the sector in Scotland was attracting increased interest this year until the lockdown brought transactions to a near halt.
Investment in commercial property for the first quarter of 2020 was double that of the same period last year, the firm said. Last year, total investment topped the £2 billion mark for the sixth year running.
Between 2002-2006 and 2014-2018, Colliers found, Irish investors largely withdrew from the UK regional market while money increased from Asia, the Middle East and other parts of Europe.
Kolodseike said the fallout from the last financial crisis, plummeting oil prices between 2014 and 2016 and political uncertainty had contributed to a slump in the domestic share of investment.
He added: “A large part of Scotland’s tax revenues comes from oil and a falling oil price deepens Scotland’s fiscal deficit. The fall in oil prices and the independence referendum had a downward effect on overall investment volumes in Scotland.
“While these factors contributed to a degree of hesitation among domestic buyers, cross-border investors increased their exposure to the market. Loose global monetary policy, a weak sterling and competitive pricing, compared to other markets, also contributed to the attraction of foreign buyers.”
Last year, investment included the £27 million acquisition of Centrica’s HQ in Edinburgh by Dubai-based BLME/Darin Partners, the £55 million acquisition of the Sauchiehall Centre in Glasgow by 90 North and Saudi firm Arbah Capital, and the £22 million purchase of Technip HQ in Aberdeen by Black Sands of Bahrain.
Korea is also a major player. Unnamed investors bought the Leonardo Innovation Hub at Edinburgh’s Crewe Toll for £100 million, and Glasgow’s 110 St Vincent Street. Hyundai Asset Management acquired an NHS base at Gyle Square for £55 million, while Mirae Asset Global Investments bought Morgan Stanley’s new headquarters in Glasgow.
In May, one of Germany’s largest pension funds bought the Aberdeen Standard HQ at St Andrew Square, Edinburgh, for £120 million.
US investor Blackstone bought Eurocentral warehouses Colossus 1 and Colossus 2 for £16 million in February this year, while CBRE acquired the nearby BrewDog Hop Hub for £10 million last November.
Colliers predicts the commercial property market will recover from Covid-19 because large investors such as pension funds need long-term, secure income streams.
Patrick Ford, Glasgow-based director of national capital markets, said: “Overseas capital continues to dominate the Scottish investment market. We are aware of circa £250 million of offices that are currently under offer in Glasgow and Edinburgh to Far Eastern investors. First into the pandemic and first out may see Asia back in the market sooner than, for example, Europe.”
By Hamish Burns