Scotland will see increased investment in ‘alternative’ asset classes in 2018 driven by a hunt for yield and secure income amongst both UK and non-domestic buyers, says international real estate advisor Savills.
The international real estate advisor pointed towards hotels, senior housing, PRS, self-storage, student housing, serviced offices, healthcare and data centres as top picks for investment in 2018. By contrast, Savills says, offices have seen the greatest investment volumes to date, accounting for 42% of all commercial property investment in Scotland in 2017. However, a lack of office investments coming onto the market and heightened competition for opportunities pushing up pricing is seeing evermore investors shift their attention elsewhere. Deals year to date that highlight this shift include Lulu Group’s £85m acquisition of the Waldorf Astoria Edinburgh and IPIM’s forward funding of 207 student beds at Forthside Way, Stirling for £18.2m.
Nick Penny, head of Scotland and director in the investment team at Savills, says: “Investment in ‘alternatives’ accounted for 25% of commercial property activity in the UK in 2017 and we see this as a growing part of the market in Scotland too. Hotels, retirement living, car showrooms and student accommodation are attracting strong interest, providing income diversity and, currently, slightly softer yields than some of the traditional sectors. Many of these investments have longer, secure income profiles that are attractive when compared to other asset classes in today’s low return environment.”
As UK institutional investors start buying again - following a period of two years which saw overseas investors account for 46% of the Scottish commercial property market – Savills says this too will result in more activity in the alternatives sector.
Nick adds: “Overseas investors have had the lion’s share of investment activity in Scotland since 2016 as they looked to take advantage of the fall in Sterling. These buyers have predominantly focused on core, prime business space assets with 64% of all overseas investment allocated to this in 2017. As non-domestic buyers continue to focus on this area of the market we are talking to UK buyers who are looking outside of this sphere of interest to less competitive sectors that have perhaps been overlooked to date yet still offer strong returns.”
Other Savills ‘non-core’ investment top picks for 2018 include:
- Edge of core and future core offices, tech and media friendly refurbs and secondary offices that can be converted into prime.
- Urban logistics for e-commerce.
- Experience and convenience retail in prime locations, alongside retail warehousing.