More than 93% of the office space purchased in Edinburgh in 2016 was bought by overseas investors, according to new research from property firm JLL.
While the Scottish capital’s total office investment volumes fell from nearly £400 million in 2015 to £355 million in 2016, the percentage of international buyers increased from 62% to 93%.
JLL said that while UK institutional investors have become reticent about Edinburgh due to political considerations, the Scottish capital remains attractive to international investors.
“Edinburgh, in particular, as a European Capital City with a broad occupier base, a growing workforce and very strong tourist spend is being perceived by investors as an attractive long term bet, whatever shape ‘Europe’ might take in the future,” said Chris Macfarlane, lead director in Capital Markets at JLL Scotland.
“We expect to continue seeing overseas buyers outstripping domestic funds as we move forward.
“However, the proportion of overseas investment recorded in 2016 could be the highest on record for quite some time given the unique cocktail of triggers which impacted on the market in 2016.”
Macfarlane said the continuing uncertain political landscape was causing UK Institutional Funds to go “Scotland-light.”
“There is no wholesale selling but funds are reticent to be over exposed to Scotland in terms of their overall portfolio weightings,” said Macfarlane.
“In comparison to some of the UK’s other strong regional markets such as Manchester and Birmingham, pricing has been discounted in Scotland typically between 25-50 bps.
“A trend not lost on those canny investors trying to find some extra margin of value.”
Macfarlane said political instability in the Middle East, Russian “posturing” and the prospect of US President Elect Trump were all adding to a flow of capital from those regions and countries trying to find more stable markets such as the UK.
“London has become increasingly expensive — hence the larger regional markets in the UK including Edinburgh and Glasgow have looked like offering better value,” Macfarlane added.
“This is particularly so for more mature/sophisticated investors (e.g. North American Private Equity and German Institutions) who are very au-fait with the regional markets …
“The immediate impact of the (Brexit) Referendum outcome, resulting in the de-valuation of sterling, has generally made the UK look like better value, as those investors trading in the Euro/Dollar see a positive currency play.
“However, with so much uncertainty on the horizon, the natural investor reaction is a flight to prime and the stronger markets.”