Investment into Edinburgh’s office market in 2016 attained heights not seen since 2006, despite a year of political uncertainty both domestically and further afield.
Edinburgh office investment reached £426 million during 2016, 73 per cent above the 10-year annual average. Overseas buyers ploughed £310 million into the city’s offices market, representing 73 per cent of the total turnover and the highest share ever recorded.
Non-domestic investors have become increasingly dominant since 2015, taking advantage of the weak pound, while the UK Institutions have been quieter. German-based funds were particularly active in Edinburgh, with Deka Immobilien and TRUIVA acquiring Atria (£105 million) and Waverley Gate (£63 million) respectively.
Following the UK's vote to leave the EU, there was a brief pause as investors took stock and observed how the market reacted to the result. Since then, investors have maintained a defensive investment strategy as they search for well-let assets with strong covenants on long leases. So far in 2017 we are already noting an uptick in sentiment with Aberdeen Asset Management set to sell Exchange Place 1, 2 &3 to overseas investors GLL Real Estate and HSBC Private Bank for a combined £80 million.
Generally, we see the key regional cities including Edinburgh as more defensive to the impact of Britain leaving the EU than London. Availability is low, particularly of refurbished space, and demand is strong. Edinburgh remains attractively priced relative to comparable regional cities, with prime yields currently standing at 5.5 per cent and, while the UK funds were the largest sellers of offices during 2016, now with money to spend we expect them to be more active going forward.
We expect that the pound will remain comparatively weak throughout and after the Brexit negotiation process and this, combined with the income security that the UK lease offers, will stimulate a steady rise in non-domestic interest in commercial property in the UK, as we’ve already seen in Edinburgh.
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