Investment is flooding into Edinburgh’s commercial sector

Following a notably strong 2016 in terms of total commercial property transactions in Edinburgh, appetite for Scotland’s capital city continues to grow.

Last year, there were £426m of office transactions - 73% above the 10-year average - and so far in 2017, £152m worth of deals have been recorded, 15% above the Q1 10-year average.

Meanwhile, total investment in the city’s commercial property reached £1.2bn driven by the St James Quarter deal in Q4 2016.

“Edinburgh is a globally acknowledged capital city, a powerhouse and a major tourist destination, and more often than not these fundamentals appear to override any investor uncertainty surrounding Brexit negotiations and indyref2,” explains Nick Penny, head of Savills Scotland.

Investment hotspot

Edinburgh is an established hotspot for overseas investors, which accounted for 73% of all investment last year. Penny cites TH Real Estate’s purchase in January of the OMNI leisure scheme for £75m, as an example.

Edinburgh’s fundamentals appear to override any investor uncertainty - Nick Penny, Savills Scotland

However, he highlights that 2017 has seen the return of UK institutions.

Indeed, Savills’ research shows that £99m was invested by UK institutions across all sectors in Edinburgh during the first quarter of 2017, almost doubling the £53m total spend by UK institutions in Edinburgh in 2016.

“UK institutions have been particularly active in the retail and leisure sector in 2017 to date and in Scotland the retail sector is benefiting from resilient consumer expenditure figures since the EU referendum and Scottish yields remaining attractive relative to the rest of UK,” says Penny.

Retail spree

Key Edinburgh deals include Legal & General’s purchase of 109-112 Princes Street for £24m and Moorgarth’s £23m purchase of Waverley Mall.

A further £79m was invested in retail across Scotland overall, taking total transactions in the first quarter to £126m, a 157% increase on the same period in 2016.

“Looking to the year ahead, we expect the market to see healthy competition for prime assets among overseas and domestic investors,” says Penny. “Edinburgh has [benefited] and looks set to continue to benefit from the ongoing shift by investors towards secure income.

“With Scottish assets and yields remaining attractive comparative to other UK regional markets, one of the biggest challenges going forward could be simply the lack of sizeable commercial assets north of the border to invest in.”

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