Investment into Scottish commercial property reached £2.088 billion in 2022, down from £2.2 billion in 2021 following a quiet third and fourth quarter, according to the latest Scotland Snapshot from Colliers.
The report said volumes hit £1.7 billion at the half year mark but were let down by a very subdued second half of the year.
Colliers Director of Research & Economics Oliver Kolodseike said: “Scotland had a very strong start to 2022 with investment volumes soaring at the half-year mark, however, the market wasn’t immune to the impact of the ‘mini budget’ and the resulting uncertainty damaged volumes in the second half of the year.
“The Q4 figure of just under £210 million, is well below the five-year quarterly figure of £570 million.”
Colliers said: “It was another quiet quarter for industrial investment, with only £30 million transacted across nine deals.
“Despite the significant slowdown in transaction volumes towards the end of the year, the £360 million invested in 2022 was the strongest annual figure since 2014 and above the ten-year average of £240 million.
“Take-up in Scotland for industrial all sizes reached around 5.3 million sq ft in 2022, this is down by 15 per cent on 2021 and 11 per cent below the five-year annual average.
“Although demand for space remains resilient, there are signs that a lack of modern stock in the wider Edinburgh and Glasgow markets is hampering take-up activity.
“Office investment volumes remained subdued in Q4, slowing from £40 million in Q3 to just over £20 million, marking the weakest quarter since Q2 2020.
“Despite the significant slowdown in activity in the second half of the year, the £550 million transacted throughout 2022 represents an improvement on the £490 million transacted in 2021.
“However, this is still below the ten-year annual average of £710 million. The only sizeable office transaction in Q4 was the £19 million sale of Edinburgh’s Orchard Brae House to VCM Global Asset Management, at a net initial yield of 6.9 per cent.
“At just £30 million, annual volumes were significantly below the ten-year average (£150 million) in Aberdeen, slightly below in Edinburgh (£240 million vs £310 million average) and in line with the average in Glasgow (£250 million).”
Patrick Ford of the National Capital Markets team at Colliers Scotland said: “There is no denying that the second half of the year was particularly tough for investment into Scotland’s offices.
“Across the board investors paused their activity in the hope of some market stabilisation. The repricing of assets has taken place quickly and as such we expect there to be more positive investment activity in the second half of 2023.
“The occupational markets offer some glimmer of hope with the Q4 Edinburgh take-up figures reaching the highest level for 12 months, however, this was largely due to the headline pre-let of 20 Brandon Street to BlackRock. We are very much in a position of ‘wait and see’ for a lot of deals over the next few months.”
Colliers said retail investment volumes rose slightly from £70 million in Q3 to £90 million in Q4 but remained around 25% below the five-year quarterly average.
“Most of the activity was recorded in the retail warehouse segment, led by the £30 million sale of St James retail park,” said Colliers.
“The sector attracted almost £400 million throughout 2022, up from £300 million in 2021 and the highest annual figure since 2005.
“The alternative, mixed-use and leisure segments attracted a combined £50 million of investment in Q4 2022, down from £70 million in Q3 and significantly lower than the £320 million transacted in Q2.
“Annual hotel investment in 2022 reached £140 million, down from £260 million in 2021, PBSA investment rose slightly from £80 million to £90 million, and investment in the residential sector slowed to a four-year low of £140 million.
“Despite the slowdown in transactional volumes in H2, Colliers predicts that activity should pick up again towards the middle of 2023.”