COMMERCIAL property experts have signalled confidence has returned to the Scottish market after the value of deals bounced back strongly in the first quarter.

The value of commercial property deals surged by 53% in the first three months of the year to £383 million compared with the opening quarter of 2023.

Property firm Knight Frank said the rebound came as inflation began to ease and a cut in interest rates began to look more likely, following 14 increases which took the base rate from a historic low of 0.1% in December 2021 to 5.25% in August, where it has remained since. Annual UK consumer prices index inflation fell to 3.4% in February from 4% in January, official figures published on March 20 showed.

Knight Frank said retail property deals accounted for 56% of investment volumes in the first quarter, driven largely by the sale of Aberdeen’s Union Square for a £111m. The property was sold by Hammerson to private equity firm Lone Star.

Hotels accounted for 17% volumes over the quarter, while offices represented 15%.

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The sale of Union Square was credited with helping Aberdeen record its best first quarter in the last five years, with £140m of deals concluded. Glasgow also saw a strong rebound from last year, with the value of deals increasing to £109m from £49m, a rise of 123%.

Knight Frank found that listed property companies have accounted for 43% of investment so far this year. International investors have been responsible for 30%, well below their five-year average of 57%, and private capital representing 27%.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “Last year was challenging for commercial property across the world, with interest rates rising sharply after a decade of historic lows and the economy adjusting to a new normal post-pandemic. While there was some mixed inflation data moving into 2024, a cautious sense of optimism has begun to emerge.

“It is encouraging to see that beginning to be reflected in investment volumes. Although we are not quite back to pre-pandemic levels, there is a noticeable difference between now and this time last year as macro-economic conditions settle, and buyer and seller expectations move closer together.

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“The particularly good news is that it looks like there is still plenty more to follow this year – international investors weren’t as active in the first quarter, but are still very interested in Scotland; there are several large office assets on the market; and there is a strong constituency of potential buyers. All things being equal, we are moving in a more positive direction for the year ahead.”

Fellow property firm Lismore Real Estate Advisors highlighted a number of major deals which were secured in the first quarter. These included DS Properties' purchase of BP’s North Sea headquarters in Dyce, Aberdeen, for £16m, ICG’s acquisition of Tesco in Corstorphine, Edinburgh, for £43.9m and the sale of the Omni shopping and leisure destination in Edinburgh for £64m. Omni was acquired by investment group Triple B from Nuveen.

Lismore’s analysis of the first quarter showed transaction volumes in the first quarter totalled £431m, up 33% compared with the first quarter of last year. It noted that pricing had shown signs of stabilisation, with some sectors experiencing upward pressure. Logistics and multi-let sheds remained strong, with prime yields expected to slightly harden, Lismore added.

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Chris Thornton, associate at Lismore, said: “Key themes are emerging in various sectors, with logistics and multi-let sheds continuing to lead the way, with strong demand and limited supply driving genuine rental growth and underwriting investment rationale.

“There are early signs of an increase in fund activity focusing on the prime retail, retail warehousing, hotel, and industrial sectors. Corporate mergers and acquisitions are increasing, leading to motivated sellers and portfolio realignments. Notably, Aberdeen is experiencing improved liquidity, with a significant uptick in office and industrial volumes attracting yield-hungry buyers.

“Strong rental growth forecasts are driving interest from private investors in the drive-thru sector, while private equity firms are starting to sense some real value leading to a number of high-profile acquisitions.”

Mr Thornton added: “Overall, Scotland's commercial property market shows resilience and recovery, offering various investment opportunities across sectors.”