Winners and losers: Scotland’s property market five years on from Covid pandemic

Analysis of Real Capital Analytics (RCA) data has found that, since March 2020, industrial property accounted for 21 per cent of investment volumes into commercial property assets in Scotland, compared to just 11 per cent in the half-decade prior to the pandemic. Retail property investment and seniors housing and care also saw increases - up from 27 per cent to 31 per cent and 1 per cent to 4 per cent, respectively, according to the study by property consultancy Knight Frank.

While the hotel and office sectors saw marked falls, as lockdowns disrupted tourism and working from home became the norm, the most recent figures suggest that both sectors are on the path to recovery. Investment in hotels more than doubled to £510 million last year and offices saw a 40 per cent rise to £517m, compared to the previous 12 months.

The research shows that average annual investment volumes fell to £1.9 billion following the pandemic, from £2.6bn prior to the crisis. However, when much-disrupted 2020 is excluded, the four-year post-pandemic average rises to £2.2bn. The second weakest year in terms of investment volumes was 2023, at £1.6bn, as interest rates rising to their highest point since the financial crisis took their toll on deal activity.

Knight Frank said there has also been “evident changes” in the balance of buyers across the Scottish market, pre and post Covid. International investors saw their share of volumes fall from 55 per cent to 47 per cent - although this can partially be put down to the restrictions on travel and general disruption that affected 2020 to 2022. Institutional investors also saw their share fall, from 28 per cent pre-pandemic to 20 per cent in its aftermath.

Meanwhile, private investors’ share of deal activity nearly doubled, from 12 per cent to 21 per cent. They particularly filled the gap left by other groups in 2023, the study notes, when interest rates reached their peak, as they are often cash buyers. Real estate investment trusts (REITs) and listed property companies saw their share of investment volumes increase, as they were more actively involved in deals post-pandemic.

Alasdair Steele, head of Scotland commercial at Knight Frank, said: “There have been some noticeable changes in the Scottish commercial property market following the Covid-19 pandemic. The industrial sector was the clear winner during and immediately after the pandemic period, as the occupiers in these types of properties were largely able to continue with their operations and the likes of logistics and distribution centres became even more important to the functioning of the economy.

“There is little surprise in seeing a decline in the share of investment received by offices and hotels,” he added. “Working from home has become much more normalised, but the occupier markets have remained resilient throughout and there are signs that more people are spending a larger proportion of their time back in the office.

“All things being equal, five years on from the beginning of the pandemic and the economic impact it had in terms of inflation and interest rates, there are grounds for cautious optimism. There is a broader set of buyers interested in Scottish commercial property, strong occupational markets across a variety of sectors, and interest rates on a downward trajectory.”

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