Modest recovery for Scottish property in Q3 – CBRE
Scottish property produced its first negative return in three years during the second quarter of this year, but Q3 saw a modest recovery with All Property total returns reaching 0.3%, says CBRE.
The firm’s latest research into the Scottish property market points out that Scottish property has continued to underperform compared with the UK in general – returns to date this year are running at 0.8% for Scotland, whereas the figure for the UK is 3.3%, thanks to the continued strength of the Central London offices market.
Office space in Scotland produced returns of minus 0.7% on an annual basis, CBRE says – the first negative annual total return figure seen in any sector for three years. However, outside London, only offices in the South East of England outperformed Scottish offices in Q3 on an annual basis. On a quarterly basis, offices returns in Scotland were minus 0.2% after a positive return of 0.3% in Q2. This was driven by a deterioration in capital growth, as values fell by 1.8% in Q3 compared with a 1.3% decline in Q2. Rental values remained constant, however, after falling for nine quarters in a row.
Quarterly total returns for retail property in Scotland were a positive 0.4%, but despite this, rental values (-0.5%) and capital values (-1.0%) both continued to decline on a quarterly basis.
The only Scottish sector to outperform the UK on an annual total returns basis in Q3 was retail warehouses, where returns came in at 2.3% compared with 2.2% for the UK. “On a quarterly basis, total returns for retail warehouses in Scotland outperformed every UK region outside of London,” CBRE says. Quarterly total returns for retail warehouses were +0.6%.
Industrial property in Scotland was again the strongest sector, with quarterly total returns of +0.9%, the highest so far this year. Only the traditional UK heartland of industrials, the West Midlands, saw higher returns in the third quarter. Rental values declined at the same pace as for Q2, falling 0.3%, but the rate of decline in capital values slowed slightly, to minus 1.0% from minus 1.2%.
Capital values for Scottish property fell on a quarterly basis for the sixth quarter in a row during Q3, although the pace of decline slowed to minus 1.2% compared with minus 1.6% in the second quarter. Every individual sector also produced falls in capital values, for the second successive quarter.
Rental values for Scottish property also declined in Q3 2012, falling 0.3%. They have fallen during every quarter since Q4 2008, the firm points out.
“The Scottish occupational property market continues to perform well when compared with other UK regional centres,” CBRE notes. It said the market for offices in Aberdeen had continued to see “exceptionally strong take-up, approaching a level which is roughly double its long-term average”. Take-up of Edinburgh office space for the year to date is also well above average, “thanks to a number of large lettings to financial services occupiers”.
