Covid ‘barriers’ spark downturn in commercial property deals
INVESTMENT in Scottish commercial property sharply declined amid “unprecedented” conditions in 2020, new figures show.
The total value of property transacted sank to £1.2 billion last year from more than £2bn in 2019, as the fallout from the coronavirus pandemic imposed “many barriers” to deals being done. The crisis sparked a “flight to quality stock and the rise of the industrial and logistics sector” amid the rapid growth of online delivery activity, according to analysis from property firm Knight Frank.
Investment in office deals plunged to £347 million from £759m in 2019.
However, the agent flagged its expectation that the market will rebound as the roll-out of coronavirus vaccines gathers pace.
While lockdown and economic uncertainty curbed deal-making in 2020, Knight Frank declared that the Scottish market had shown “resilience” during the year. It noted that Scotland proved to be the most popular destination for overseas investment in the UK outside London and the south-east.
International buyers accounted for £654 million or 52 per cent of the total deal value in Scotland last year. Amazon’s giant fulfilment centre in Dunfermline was acquired by a Korean investor for £65m in Scotland’s largestever logistics deal, while Apache
Capital Partners and Harrison Street funded the Springside build-to-rent in Edinburgh for £215m.
Other noteworthy deals saw German fund Kan-am buy Edinburgh’s Quartermile 3 for around £45m, and Singapore-based Elite Partners acquire 150 Broomielaw in Glasgow for £40m.
Alistair Steele, head of Scotland commercial at Knight Frank, said: “Given the unprecedented nature of 2020 and the many barriers that emerged to making deals happen, last year’s investment volumes in Scotland proved resilient. A number of trends took hold relatively early during the pandemic and were borne out as it evolved, namely a flight to quality stock and the rise of the industrial and logistics sector, which you can see in the major Scottish deals concluded last year.
“While activity is likely to be constrained early in the year with lockdown measures still in place, there remains a weight of money waiting to be deployed by investors. We expect that to support a rebound when vaccination programmes are more widely rolled out and restrictions on movement begin to lift, with deals already being talked about for later in 2021.
“Of course, the situation is changing all the time, but we continue to be cautiously optimistic. Quality offices, along with the industrial and logistics sectors, were in demand throughout the pandemic and that looks likely to remain the case. So too does Scotland’s attractiveness to overseas investors and the insatiable appetite for secure, longterm income, which commercial property can provide.”
Meanwhile, research from CBRE flagged a decline in total office take-up in Aberdeen in 2020, as the Covid-19 crisis undermined deal activity. CBRE noted that 53 deals were completed, compared with 84 in 2019, although it suggested the city remains attractive for larger occupiers on account of eight deals topping the 10,000 square feet mark.
The commitment of BP to new headquarters spanning around 100,000 sq ft at Aberdeen International Airport, Dyce, was by far the biggest deal of the year. CBRE also highlighted Stork’s 55,000 sq ft acquisition of The Quad in Dyce, Equinor taking on a further 15,000 sq ft at Prime Four, and Kingswells and C7 Health purchasing a 19,200 sq ft office, also in Dyce.
Although office take-up was down in 2020 compared with 2019, the property firm noted that it had been the secondbest year since the plunge in crude oil prices in 2014. It also said 2020 was 11.3% above the five-year average.
Derren Mcrae, head of office at CBRE Aberdeen, said: “Whilst we’ve endured a challenging year, the city’s healthy final office take-up figure paints an encouraging sign. A city that is all too familiar with economic disruption, it’s perhaps Aberdeen’s famous resolve and resilience that explains how we’ve managed to successfully navigate both a global pandemic and oil price fluctuations, delivering some positive end of year figures in the process.
“Despite market challenges it is encouraging to see that there are some fairly significant office requirements being circulated. It will certainly be interesting to see how office requirements evolve as companies look to incorporate more flexibility for the working location of staff into their real estate strategy, with many likely to favour a blended approach.”
The situation is changing all the time, but we continue to be cautiously optimistic