Lismore Real Estate Advisors has unveiled its comprehensive review of the Scottish investment market for the final quarter of 2023, shedding light on the economic and political challenges that defined the year.
As we bid farewell to a tumultuous 2023, many in the investment market are eager for a fresh start in 2024. Reflecting on the past year, the economic and political landscapes appeared less than favourable, with a perfect storm of factors contributing to a challenging environment.
Despite year-end volumes being down on the five-year average, there are promising signs of improvement. A more settled lending environment, realistic property values, and a substantial pool of waiting capital suggest that momentum is building. While challenges lie ahead, the focus shifts from dwelling on the difficulties of 2023 to anticipating the opportunities of 2024.
Chris Macfarlane, director of Lismore, believes several key themes emerge as we navigate the property market in 2024.
He said: “The emergence of Administrative Receiverships signals progress in the market cycle, forcing over-leveraged borrowers to sell. Proper price discovery becomes crucial, with recent transactions, especially in pressured sectors like offices, providing benchmarks for realistic pricing and investor interest.
“Contrary to the belief that bigger is better, the most liquid part of the market remains sub-£10 million, attracting private buyers with limited debt requirements. The cost of money appears to be stabilising, offering some relief after a turbulent period. Well-capitalised investors with minimal legacy issues are encouraged to seize prime/core-plus assets in the current market.
“While logistics and multi-let industrials remain stable, offices pose a challenge with divergent opinions on future prospects. Retail warehousing emerges as a sector offering good value, attracting interest from investors.
“Buyer activity remains selective and opportunistic, with a focus on sectors such as Living and Logistics. Core-plus buyers are finding value in offices, leisure, and retail warehousing, driven by attractive pricing where debt can be accretive.”
Examining transaction volumes, Q4 witnessed £365m traded, an 8% decrease from Q4 2022. Total volumes for 2023 are expected to end close to £1.4 billion, reflecting a 20% decrease from 2022. Pricing trends indicate a shift from the caution of “catching a falling knife” to a more realistic approach, with sellers aligning with market realities.
The largest transaction of the quarter was the £45.5m sale of The Centre in Livingston, one of Scotland’s largest shopping centres. Other noteworthy deals included abrdn’s £30m sale of Kingsway West Retail Park in Dundee and Patrizia’s £20m sale of 9-10 St Andrew Square in Edinburgh as a hotel development opportunity.
The latest quarterly investor research undertaken by Lismore indicates that optimism prevails as 96% foresee 2024 as a year of opportunity, despite a sluggish end to 2023. Funds, managers, and private equity unanimously anticipate positive prospects, benefiting from softer yields and thin buyer pools in H1 2024. Property companies strike a more cautious note, with 12% expressing pessimism, possibly anticipating heightened competition.
The top-performing sectors in 2024 are predicted to be living, industrial, and retail warehousing, comprising 92% of responses. Living, especially purpose-built student accommodation (PBSA), stands out due to a demand/supply imbalance in key cities.
Factors contributing to a more liquid market include improving macro-economic conditions, stable/improving debt terms, and confidence. The anticipation of debt-backed investors finding stability aligns with predictions of the Bank of England gradually cutting interest rates from mid-2024. Despite a mere 2% attributing increased liquidity to a new UK Government, hopes linger for political stability after an early 2024 election.
Mr Macfarlane concluded: “As we raise a toast to the prospects of 2024, the property market in Scotland navigates challenges, embracing opportunities for growth and resilience. The road ahead may have its twists, but with optimism and strategic insights, industry players are poised for a year of progress and opportunities.”
