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Scottish cities – magnets for foreign investors
International investors’ focus on cities is working in Scotland’s favour, as strong fundamentals attract capital to the nation’s centres, experts agreed at the PropertyEU Investment Opportunities: Scotland briefing, which was held at MIPIM in March.
‘Capital flows are very varied in Scotland, from Europe, especially Germany, the Far East and the Middle East,’ said John Rae, partner, office head, Glasgow, Knight Frank. ‘Institutions, family offices and individual investors are all increasing their presence. We have seen old capital come back and new capital come in, and it is difficult not to see that continuing.’
There is a lot of activity in the Scottish market, said Simon Etchells, partner, Dentons: ‘We have seen a lot of German and South Korean money recently. I am doing more development in Scotland now than I have done for ten years.’
Political risk is minimal from a foreign investor’s point of view, Rae said: ‘They see things in relative terms and the risk of Brexit is pretty benign compared to what happens in other parts of the world they operate in.’
The importance of infrastructure
Investors focus more on the region’s good infrastructure and transport links. The first direct flight between Bejing and Edinburgh has just started operating. ‘We like the infrastructure, the quality of life and the investment market,’ said Olivier de Bisscop, Acquisition Western Europe, GLL Real Estate Partners. ‘We will keep looking for opportunities in Scotland.’
Offices are particularly in demand as the cities’ economy builds on its strengths. Edinburgh, a well-established financial centre, is now an innovation centre and hosts the UK’s largest software development centres for Microsoft and Amazon. Glasgow has a manufacturing and engineering heritage and is now also a centre of excellence for satellite production, as well as being home to Morgan Stanley’s new headquarters.
‘There is an ever-increasing band of international investors who want larger assets, and 47% of capital in the office sector comes from overseas,’ said Rae. ‘We need office development in Glasgow and Edinburgh to find large assets for these investors. The supply/demand dynamics are hugely in the landlord’s or the developer’s favour now, yet there is no grade A office development under construction.’
According to Robert Sim, partner and head of Northern Europe, Europa Capital, ‘speculative development is still difficult, so repositioning existing buildings to meet demand for offices is the way to go.’
Retail a growth area
Retail is another growth area, said Marrit Laning, managing director for fund management, Redevco: ‘Success in this sector depends on finding places where people want to be. We have found that in Glasgow. It has a lot of history but also a lot of innovation going on, which is a nice combination, it has many positive trends and some rough edges, a real feeling of revitalisation. We love the amazing period buildings we can turn into great retail destinations.’
Another growing retail and mixed-use opportunity is Dundee, where the new Victoria & Albert Design Museum – the first and only one outside London – will open in September and is expected to attract many new visitors, tourist and shoppers to the waterfront.
A win-win relationship
Investing in Scotland is made easier by strong government support, said Simon Parsons, senior manager, Scottish Enterprise/Scottish Development International: ‘The public and private sectors work well together in a symbiotic, win/win relationship. Capital investment is now a strategic priority for the Scottish Government.’
Scotland’s Investment Prospectus was presented at MIPIM, with details of nine ‘shovel-ready and investor-ready projects’, worth £2 bn, Parsons said: ‘We can demonstrate they will deliver returns.’
There are opportunities outside the city centres as well, such as the Clyde Gateway regeneration project spanning 840 hectares, which will deliver offices, residential and public spaces on the banks of the river just outside Glasgow.