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SCOTLAND UNITED KINGDOM SNAPSHOT MAY | 2020
2
May 2020 | Scotland Snapshot | United Kingdom
Research & Forecasting Report | Colliers International
ECONOMY
The outbreak of COVID-19 and the resulting UK- below the UK figure of 36.0. The particularly weak
wide lockdown have significant impacts on the performance in Scotland can be explained with
Scottish economy and the commercial property its relative dependency on oil compared to other
sector. In line with the global economy, Scotland UK regions. Indeed, the price for a barrel of Brent
will fall into recession in 2020, with latest crude oil has fallen by around 60% since the start
forecasts from the Office for Budget Responsibility of the year and currently trades below $30.
suggesting that the UK economy could shrink by as The drop in the oil price is attributed to a
much as 35%, before a steep v-shaped recovery combination of declining demand as a direct result
is expected in the second half of the year. The of COVID-19 and the recent price war between
Fraser of Allander Institute (FAI) estimates that the Russia and Saudi Arabia.
short-term impact of the crisis could be a reduction Retail sales had a poor start to 2020 with sales
of Scotland’s economic output of between 20% volumes falling for a third consecutive quarter.
and 25% if current restrictions continue for a Consumer confidence plummeted to a record
three-month period. The unemployment rate will low, according to a Deloitte survey, with Scots
rise, government debt will increase and consumer particularly worried about job security.
spending will remain subdued, especially for big
Sterling remains broadly stable at just under $1.25
ticket items.
and equity markets have recovered and stabilised
Economic data has turned negative and worse somewhat from their recent lows. However,
is yet to come. The Scotland PMI fell to a record markets remain volatile and seem to respond more
low of 29.7 in March with only Northern Ireland to news on the trajectory of COVID-19 rather than
recording a weaker reading (29.1). This is well economic data.
Colliers’ view: In line with the wider global economy, Scotland’s GDP will take a substantial hit this year.
The pace and magnitude of the economic recovery will depend on the lockdown exit strategy, the oil price
trajectory and Brexit deal negotiations.3
Research & Forecasting Report | Colliers International
May 2020 | Scotland Snapshot | United Kingdom
INVESTMENT
Quarterly investment volumes reached £420m in Q1 2020, little-changed from the £414m transacted in
Q4 2019 but was up by around 40% from a year ago. However, transactional volumes remained below
the five-year quarterly average of £581m. The sale of the Springside PRS scheme in Edinburgh accounted
for half of all activity by value (£215m). Offices and industrial recorded only limited activity during the
first quarter, while the sale of two larger retail warehouses helped retail investment volumes to recover
from a weak Q4 2019. Overseas investors remained an importance source of capital and accounted for
two thirds of all activity. UK institutions were absent from the market in Q1 2020 for the first time since
the EU referendum in 2016 and for only the third time on record. Preliminary data for April suggests that
the market came to a complete standstill at the start of Q2, although we understand that Kan Am have
now completed their acquisition of 4 North in Edinburgh for £31m / NIY 4.33%. Furthermore, a number
of assets are currently under offer including the forward funding of an Amazon Distribution Facility at
Glasgow Business Park as well as high profile office and Hotel asset in Edinburgh totalling circa £140m
and which are being sold separately off market.
Retail: Transactional activity picked up from anchored by Tesco and B&Q, with other tenants
£4 million in Q4 2019 to £99m in Q1 2020, but including TK Maxx, Decathlon and Costa. Wittington
remained well below the five-year quarterly Investments were also active, purchasing West
average of £157m. Capital mainly targeted retail End Retail Park in Glasgow for £24m at 7.5% IY.
warehouses, with only very few unit shops and The 80,000 sq ft retail park is multi let to nine
shopping centres transactions recorded. No tenants. Also in Glasgow, Braes Shopping Centre
supermarkets traded during the first quarter. The was acquired by G1 Group for £3.375m at 17.72%
sale of Edinburgh’s Hermiston Gait Retail Park to IY. The asset comprises a floorspace of around
BauMont Real Estate and Ediston Real Estate for 124,000 sq ft and its tenants include The Secretary
£65m at 8.4% IY was the largest deal in Q1. The of State, Greggs, Iceland and William Hill.
306,000 sq ft asset comprises 13 units and is
RETAIL TRANSACTIONS VALUE DEALS Q1 20 SELECTED YIELDS
Unit Shops £4.4m 5 7% Edinburgh
Retail Warehouses £93m 4 7.5% Glasgow/ 8.4% Edinburgh
Shopping Centres £3m 1 17.72% Glasgow
Supermarkets n/a 0 n/a4
Offices: Office transaction volumes slowed from The asset spans around 12,400 sq ft over five
£180m in Q4 2019 to £48m in Q1 2020 and floors and is understood to have sold 20% above
remained below the five-year quarterly average of the asking price. Its tenants include Savills,
£206m for the third consecutive quarter. The Q1 Quartermile Ventures and legal software company
figure was the weakest since 2012. Excluding any Opus 2 International. In Glasgow, Berkeley House
May 2020 | Scotland Snapshot | United Kingdom
Research & Forecasting Report | Colliers International
confidential deals, the sale of Edinburgh’s Wemyss on Bath Street was sold to a private investor for
House to an Austrian private family office for £5m just under £4m at 9% IY.
at 5% IY was the largest transaction in Q1.
OFFICE TRANSACTIONS VALUE DEALS Q1 2020 SELECTED YIELDS
Glasgow £4m 1 9% Bath Street
Edinburgh £7m 4 5% Wemyss Place
Aberdeen n/a 0 n/a
Industrial: It was a very quiet quarter for the development unit is occupied by engineering and
industrial sector in terms of investment activity scientific consultancy TUV SUD. Elsewhere, Cable
with only three deals recorded. Volumes were Properties & Invest bought five units at Clydesmill
down on Q4 falling from a strong £80m to just Industrial Estate in Cambuslang for £1.125m at
£5m. Glyn Watkin Jones Trust acquired Reynolds 7.75% IY. The premises total 13,000 sq ft and are
Building at the Scottish Enterprise Technology fully let to tenants including Craighead Building
Park in East Kilbride for £3.75m at an undisclosed Supplies and Clyde Document Imaging.
yield. The 20,000 sq ft high-tech research and
INDUSTRIAL TRANSACTIONS VALUE DEALS Q1 2020 SELECTED YIELDS
Distribution n/a 0 n/a
Multi-let parks £5m 3 7.75% Cambuslang
Alternatives/Other: Assets outside the ‘traditional’ completion is expected in 2022. The second largest
office, retail and industrial sectors attracted £265m deal was Impact Healthcare REITs purchase of the
in Q1 2020, up from £149m in Q4 2019 and Holmes Care portfolio for £47.5m at 7.4% IY. The
almost 70% above the five-year quarterly average scheme comprises 649 beds across nine Scottish
of £158m. The sale of Edinburgh’s Springside care homes It is understood that a subsidiary
for £215m to Harrison Street and Apace Capital of previous owner Holmes will continue to lead
Partners was not only the largest Q1 deal, it was operations after the completion of the sale-and-
also by far the largest ever recorded PRS deal leaseback transaction. No notable hotel or student
in Scotland. The scheme will include 476 new housing deals were recorded during the first
BTR-units and 48 fully leased apartments. The quarter.
construction start is expected later this year and
ALTERNATIVES TRANSACTIONS VALUE DEALS Q1 20 SELECTED YIELDS
PRS £215m 1 n/a Edinburgh
Hotel £48m 1 7.4% portfolio
Colliers’ view: Transactional volumes will be down significantly in Q2. If the lockdown is starting to be eased in
the next couple of months, then we should see a return to stronger activity in the second half of the year.5
FIGURE 1: SCOTLAND GVA GROWTH AND THE PMI
GDP(LHS) PMI, quarterly average (RHS)
5.0% 70
4.0% 65
Research & Forecasting Report | Colliers International
May 2020 | Scotland Snapshot | United Kingdom
3.0% 60
2.0%
55
year-on-year percentage change
Index
1.0%
50
0.0%
45
-1.0%
40
-2.0%
-3.0% 35
-4.0% 30
-5.0% 25
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Scottish Government, IHS Markit, Royal Bank of Scotland
*We applied the March figure as a proxy for Q2
FIGURE 2: SCOTLAND INVESTMENT VOLUMES, CUMULATIVE, IN £M
2018 2019 2020
£3,000
£2,500
£2,000
£1,500
£1,000
£500
£0
Q1 Q2 Q3 Q4
Source: PropertyData
FIGURE 3: SCOTLAND ANNUAL INVESTMENT VOLUMES, IN £M
£3,500
£3,000
£2,500
£2,000
£1,500
£1,000
£500
£0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: PropertyData6
Retail Retail sales volumes in Scotland fell by 1.1% its largest ever share of retail spending (22.3%).
q/q in Q1 2020 marking the third consecutive Retail landlords are struggling to collect rents.
quarterly decline and the largest drop since 2012. The government’s eviction ban looks to have been
With lockdown measures being brought into interpreted by many tenants as a reason not to pay,
Retail
May 2020 | Scotland Snapshot | United Kingdom
Research & Forecasting Report | Colliers International
place on March 23, the Q2 figures are likely to although there is genuine pain. It has been reported
be much worse. Although overall spending has that Hammerson received only 37% of rent due for
fallen, research by St Andrews and Heriot Watt Q2, while Intu Properties reportedly only collected
universities found that spending on groceries 29%. Latest monthly data from MSCI shows that
increased significantly in the lead up to the rents fell by 5.0% y/y in March, slightly less severe
lockdown and that consumers in Scotland began than the 5.9% y/y decline recorded across the
stockpiling on grocery items much earlier than whole of the UK. The Q1 2020 RICS Commercial
individuals in England and Wales. Meanwhile, the Market Survey suggests that a net balance of 88%
ONS reported that the UK-wide online sales grew predicting a fall in Scottish retail rents.
12.5% on a year earlier, with ecommerce taking
Colliers’ view: Unchanged. Rents will continue to fall across most market segments as more space
becomes redundant. Landlords will have to become more accommodating.
Offices Glasgow’s office market showed resilience in Q1 of 90,000 sq ft available. Take-up figures also held
2020 with take-up figures rising from 104,000 sq up in Edinburgh, rising from 96,000 in Q1 2019 to
ft in Q1 2019 to 242,000 in Q1 2020. This is only 128,000 sq ft in Q1 2020. This was the strongest
marginally below last quarter’s figure and 6% above figure in over year, although slightly below the five-
the five-year quarterly average of 229,000 sq ft. year quarterly average of 148,000 sq ft. Notable
With only very limited availability for grade A space, deals include Peoples Energy signing for 17,600
the large majority of deals were for secondary sq ft at Shawfair Business Park and the FCA’s
space. The public sector was very active in Q1 and signing for 16,100 sq ft at Quayside House. There
accounted for over half of all leasing activity. The is currently 292,000 sq ft under construction of
Scottish Government signed for 90,500 sq ft at which 23% is pre-let. In Aberdeen, quarterly take-
220 High Street and Skills development Scotland up reached 171,000 sq ft, significantly stronger than
took 27,000 sq ft at Monteith House on 11 George the 37,000 sq ft signed for in Q1 2019. The largest
Square. Elsewhere, Sedgwick International UK transaction was Equinor’s signing for an additional
signed for 18,300 sq ft on 103 Waterloo Street. 15,000 sq ft at its existing base in The Forecourt
Total availability in Glasgow city centre is below Office at Prime Four.
1,000,000 sq ft with no Grade A buildings in excess
Colliers’ view: The office workspace will change. The outlook is uncertain and depends on how businesses
adapt to the “new normal” in a post lockdown world.7
FIGURE 4: RETAIL SALES VOLUMES, ANNUAL GROWTH RATE
5.0%
4.0%
Research & Forecasting Report | Colliers International
May 2020 | Scotland Snapshot | United Kingdom
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Scottish Government
FIGURE 5: OFFICE TAKE-UP ACROSS EDINBURGH AND GLASGOW
Edinburgh Glasgow 5-year quarterly average
900,000
800,000
700,000
600,000
sq ft
500,000
400,000
300,000
200,000
100,000
0
Q1 2015 Q1 2016 Q1 2017 Q1 2018 Q1 2019 Q1 2020
Source: Colliers International, GVA8
May 2020 | Scotland Snapshot | United Kingdom
Research & Forecasting Report | Colliers International
Industrial Total production volumes fell 1.2% q/q in Q4, figures will likely go up slightly when more deals
following a 1.1% q/q increase in the previous are confirmed. The larger end of the market is
quarter. Manufacturing output contracted for holding up better than expected whilst enquiries
the sixth consecutive quarter and activity in the from SMEs have reduced significantly since the
‘Electricity & Gas Supply’ sub sector declined COVID-19 outbreak. Amongst some of the most
at the sharpest rate (-3.7% q/q) in three years. notable deals, Iceland has signed a lease renewal
Mirroring this trend, the March Royal Bank of for its 284,000 sq ft regional distribution centre at
Scotland Manufacturing PMI signalled the strongest Houston Industrial Estate in Livingston on a
decline in output levels since early-2009, pointing 20 year lease. Iceland pays £6 per sq ft.
to ongoing difficulties in the sector. Provisional Elsewhere, the manufacturer Ferguson Marine
take-up figures for Scotland show 1.2m sq ft of agreed to lease 77,000 sq ft of space at 2
total space was transacted in Q1 2020, down 20% Cartsdyke Avenue in Greenock.
on the 5-year quarterly average. However, these
Colliers’ view: Prior to the outbreak of COVID-19, we expected tight availability and a pick-up in occupier
activity to lead to moderate rental growth in 2020. The current outlook is very uncertain.9
Research & Forecasting Report | Colliers International
May 2020 | Scotland Snapshot | United Kingdom
Residential Average Scottish house prices rose 2.5% in people to put transactions on hold and estate
the year to February, up from 2.2% in January agents closing their offices, activity has more or
and stronger than the 1.1% recorded for the UK, less been frozen over the coming months. Data
according to data from the Land Registry. Prices from ESPC suggests that sales volumes were
in Edinburgh (+3.7%) and Glasgow (+4.0%) are down by 9.2% y/y in Q1 2020 and the number of
holding up better than other parts of the country, homes coming onto the market declined by 8.4%
with prices down by 3.6% in Aberdeen and 3.3% y/y. Mortgage rates remain accommodative, with
in East Ayrshire. Zoopla numbers meanwhile show the Bank of England’s 2 year fixed (75% LTV)
that house prices continued to increase in April, mortgage standing at 1.42% in March, down from
with the average property 2.7% higher than a year 1.70% a year ago.
ago. With the government strongly encouraging
Colliers’ view: Unchanged. Activity will freeze in the coming months and house prices are expected to fall.FOR MORE INFORMATION
Douglas McPhail RESEARCH & FORECASTING
Head of the Glasgow Office
Walter Boettcher
douglas.mcPhail@colliers.com
Head of Research and Economics
+44 141 226 1067
walter.boettcher@colliers.com
+44 20 7344 6581
NATIONAL CAPITAL MARKETS
Patrick Ford Oliver Kolodseike
Director Associate Director
patrick.ford@colliers.com oliver.kolodseike@colliers.com
+44 141 226 1004 +44 20 7487 1671
Elliot Cassels
Director
elliot.cassels@colliers.com
+44 131 240 7534
This report gives information based primarily on Colliers International data, which may be helpful in anticipating trends in the 2 W Regent St,
property sector. However, no warranty is given as to the accuracy of, and no liability for negligence is accepted in relation
to, the forecasts, figures or conclusions contained in this report and they must not be relied on for investment or any other Glasgow
purposes. This report does not constitute and must not be treated as investment or valuation advice or an offer to buy or
sell property.
G2 1RW
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