Why 2014 Indyref was the turning point for the Scottish commercial property market

The analysis shows that in the build-up to the referendum on September 18, 2014, UK institutional investors accounted for the largest share of investment in Scottish commercial property at 36 per cent.

However, during the ten years that have followed, international investors averaged nearly half of investment volumes at 48 per cent - rising from just 31 per cent between 2004 and 2013, and well ahead of UK institutions’ annual average of 26 per cent. The study by property consultancy Knight Frank is based on its analysis of Real Capital Analytics (RCA) data.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “A lot has changed in the ten years since the independence referendum - both directly and indirectly related to the vote being held. Understandably, in the immediate build up to and aftermath of the referendum, UK institutions paused investment in Scottish commercial property, because there was some uncertainty over whether those assets would remain within their mandate. That created an opportunity for international investors to fill the gap and, with the exception of this year, they have been the largest buyers since 2015.”

So far in 2024, in a reversal of the post-referendum trend, international investors have accounted for just 25 per cent of investment volumes, while real estate investment trusts (REITs) and private buyers have represented 31 per cent each.

Steele said consumer trends had changed “a great deal” since 2014 which is reflected in the levels of investment in retail property. In 2004, the sector accounted for 59 per cent of total investment volumes, which fell to a low of 17 per cent in 2021, amid the pandemic.

However, retail has rebounded from that nadir and the arrival of the £1 billion St James Quarter in Edinburgh and the recent sale of Union Square in Aberdeen demonstrate that there are opportunities emerging in the sector again, he noted. A stake in St James Quarter that was put up for sale this summer is said to be attracting “a good level of interest”.

Average annual investment volumes have remained pretty consistent, according to the study, at £2.45bn pre-referendum and £2.48bn in the decade that followed. Both ten-year periods included major events that affected markets, including the global financial crisis, Brexit and the Covid-19 pandemic. Meanwhile, investment in hotels has risen from 11 per cent to 16 per cent, as Scotland grows in popularity as a tourist destination.

Steele added: “The marked difference between this year and the trends that emerged post-referendum also show that things are changing all the time. Private purchasers, typically family offices or ultra-high-net-worth individuals buying with cash, have re-emerged as one of the key drivers of deals in the Scottish commercial property market, as debt-financed investors have been subdued by higher interest rates.

“Hotels will remain a popular asset class as we welcome more visitors to Scotland, while offices should continue to recover from the effects of the pandemic.”