More encouraging volumes in the second half of the year signal a cautious return of confidence and investor appetite for 2021
Leading independent property advisory firm, Lismore Real Estate today released its comprehensive quarterly review of the Scottish investment market.
In a year like no other, with challenges across the entire property market and global economy, Lismore reflects on 2020 and looks forward to 2021.
Transaction volumes for Q4 are anticipated to end at circa £420m, which is some 30% up on Q3 at £320m. Against the annual five-year average, this will be around 50% down, but in the face of such significant headwinds, it is not surprising and more positive than many were predicting earlier in the year.
After a relatively subdued first half of the year, volumes in the second half of the year have been more encouraging, meaning that total volumes for 2020 will end up at close to £1bn.
Against this backdrop and with the roll-out of a national Covid-19 vaccine programme, Lismore predicts a brighter year ahead, with investor appetite continuing across the hottest ‘in vogue’ sectors of the market, including distribution and multi-let industrial assets, along with food anchored and well-located retail warehouse parks. Recent deals including the £31m sale of Sainsbury’s regional distribution centre in East Kilbride clearly illustrate this trend.
The residential market will remain resilient in 2021, particularly student accommodation, senior living, care homes and build-to-rent. Indeed the BTR sector
will chalk up its most successful year on record, including the £81.5m sale of Candleriggs Square, Glasgow, a 346-unit scheme in September.
The rapid emergence of life sciences as a stand-alone asset class will continue, with a significant weight of money starting to discover the sector and its burgeoning opportunities.
The standout office deal of the quarter was the £45m sale of Quartermile 3 in Edinburgh by M&G to the German KanAm Grund Group.
Colin Finlayson, Director at Lismore, said:
“The outlook for 2021 is reliant on a successful vaccine roll-out to provide a much-needed literal and economic shot in the arm, along with the resultant lifting of Government lockdown restrictions.
“If this happens we will see confidence returning and fear subsiding in the market, albeit Brexit will continues to loom in the background and cause uncertainty.”
“Despite some concerns last quarter that the core plus sector was softening slightly, this has not (yet) happened and the continuing weight of capital circling this sector is helping to maintain pricing.
“2021 is likely to see more opportunity for private equity. Patience remains a virtue and it makes sense for asset managers to add value where they can.”
In terms of investor activity, some of the UK open ended funds have resumed trading and there has been orderly selling, with strong pricing being achieved for sales in the liquid sectors. Acquisition activity has been very focused on the safest sectors of distribution, industrial, long income and residential.
Overseas investors remain prevalent and once current travel restrictions ease, we anticipate a strong comeback. The weight of global capital looking for a home has not diminished.
Colin Finlayson concludes:
“It is difficult to put into words the dramatic changes that the pandemic has caused to the economy and property market this year, but we are cautiously optimistic and look forward to increased activity and brighter times in 2021.”
The Lismore Quarterly Review includes research on investor appetite and the evolution of real estate financing for 2021. In addition, it also features two in-depth interviews, one with a leading high street lender (RBS) and the other with Aberdeen Standard Investments. (Note from FR – may move this para into notes to editors)
The full Lismore Quarterly can be seen here