Scotland’s retail warehousing and industrial sectors showed more resilience than other sectors in Q4 2011, according to CBRE’s latest Scottish Property Quarterly.
Q4 2011 saw total returns for all property in Scotland falling to 0.5%, from 1.3% in Q3 2011 and 2% in Q4 2010 – representing the lowest quarterly figure since Q2 2009, when total returns were negative.
The report notes that falling capital and rental values contributed to the decline in total returns, explained by Q4 2011 being the third consecutive quarter of falling capital values – and the 13th of falling rental values.
Compared with other sectors, retail performed relatively well with total returns for Q4 2011 of 0.7%. Despite this, the quarter also saw a decline of 0.8% after two quarters of flat capital values, contributing to the annual fall of 0.2% for the sector. However, retail warehouses continued to produce stronger total returns compared with standard high street retail.
The office market fared less well, reporting Q4 total returns of -0.2%; the only sector to see negative returns in this quarter. However, the report confirms that the sustained strength of the Central London office market, when compared with the rest of the country, is creating similar disparities in performance in virtually all UK regions.
Industrial was the best performing sector in Q4 2011 with total returns of 1.1%. It was also the only sector to see initial yields move in, from 7.2% to 7%. Relative to the UK, the Scottish Industrial sector saw the smallest performance gap in the year ending Q4 2011, reaffirming the solidity of the sector.
Investors also showed continued confidence in the market, with £331.4m transacted in Q4 2011, taking the total for the year to £1.29bn. The Q4 result represented the second highest quarterly total for 2011 although this is against an overall annual fall of 25% compared with the 2010 total.
Retail was the most active sector for investment sales in 2011 totalling £596m, a marginal decrease on 2010, with retail warehousing taking the largest slice of action at £248m for the year. The Scottish industrial sector posted the highest level of investment since 2007 with £189m transacted. The other end of the spectrum showed a 62% drop in investment transactions for the office sector, from £710m in 2010 to £273m in 2011.
Aileen Knox, senior director, CBRE (Scotland), said: “The lack of activity in the Scottish office sector generally, along with many of the other UK regional office centres, is of note; however, there are locations where the sector remains strong. In Scotland, Aberdeen continues to see rental growth, investor demand and some development activity.
“Whilst it is likely that the performance reported in Q4 will continue at least for the first half of 2012, the economic outlook remains strong for the overall future performance for all Scottish asset classes. An additional factor introduced into 2012's property market outlook will be how UK and international real estate investors view the proposed referendum on Scottish independence. The effect of this remains to be seen and is being closely watched by the market."
