Scottish market pauses in Q1
The recovery in the commercial property market in Scotland lost a little pace during Q1 2010, although total returns were still strong at 5.5%, with capital growth of 3.8%, says CB Richard Ellis. The market is readjusting following unusually strong activity in the final quarter of 2009, the group points out.
Poor weather is being blamed for lower levels of trading activity, and there is some optimism among business surveys that activity will improve during the year. The manufacturing sector in Scotland is benefiting from improved competitiveness thanks to the weaker pound.
CBRE’s latest research into the Scottish market finds that yields dipped 50bp in Q1 to 7.8%. Overall, Scottish property underperformed the wider UK over the year to end-Q1, with total returns of 15.7% (UK 17.9%) and capital growth of 7.9% (UK 9.9%).
Rental values in Scotland fell by 0.8% during the first quarter, which is a slightly smaller decline than during Q4 2009. Over the full year, Scottish rental values have fallen 4.5% overall, CBRE says.
Total returns for retail space in Scotland were again strong in Q1 – the third consecutive quarter of outperformance – at 6%, with capital values growing by 4.3%. This was largely due to retail warehouses, while high-street shops were again weaker with total returns of 4.8%. Rental values for retail property declined by 1.1% in Q1, the same pace of decline as in the previous quarter.
The performance of office property in Scotland weakened during Q1, as it did for the wider UK market. Capital values grew 3.6%, with total returns of 5.2%. Rental values were flat for the quarter, which compares with the 2.3% decline recorded for Q4 2009.
Scottish industrial property was the weakest sector in Q1, with total returns of 3.5% as capital values grew 1.7%. Rental values fell by 0.7% after a positive final quarter last year.
Keith Hutchison, director at CB Richard Ellis (Scotland), said: “Demand from institutional investors has moderated somewhat in Q1 2010, in comparison from the frenetic level of activity seen in the last quarter of 2009. This is to be expected as the pressure of demand for prime stock has compressed yields and driven up capital values.”
“Commercial property is still considered to offer good security in comparison with other asset classes, although performance cannot be driven by yield improvement in isolation and rental growth will be required over the medium term as the occupational markets recover.”
