Scottish commercial property market showing its resilience

It’s always a danger to put your finger in the wind to predict which way the Scottish commercial property market is heading, particularly given the variety of sectors and geographies across the country, each with their own idiosyncrasies. We’re very fortunate to have a mixed economy which isn’t overly reliant on one particular industry or location for employment or growth.

As we head towards UKREiiF, the UK’s largest property and infrastructure gathering, we’re taking a look at what some of the most recent indicators are telling us about the Scottish economy in general, and some headlines on the commercial property market.

According to KPMG’s chief economist, Yael Selfin, Scotland just about managed to avoid a recession last year, with weak growth expected in 2024. This is broadly in line with the rest of the UK, if not just slightly ahead. This position is endorsed by the Fraser of Allander Institute, pointing to an improved economic performance in 2025.

Confidence can be a tricky thing to measure, and an even easier thing to knock. However, the latest Bank of Scotland Business Barometer showed an increase in positivity towards the wider economy, if not the survey respondents’ own business prospects.

In that context, how has Scotland’s commercial property sector fared, and what are its prospects?

According to the latest analysis from property consultancy Knight Frank, investment into Scotland’s commercial property sector is increasing. Its latest analysis shows that investment volumes rose by more than 50% in the first quarter of this year compared to the same period in 2023. A large proportion of this was in the retail sector. The analysis paints a picture of 2023 being a particularly challenging year for the commercial property sector globally, but that activity and interest levels are increasing in the first part of 2024, suggesting a renewed sense of optimism albeit not at pre-pandemic levels.

Further evidence of this renewed sense of optimism can be seen in the latest figures from Lismore Real Estate Advisers which showed a positive start to transaction volumes in Scotland in the first three months of this year, which grew 33% year-on-year. Its research pointed to positive conditions for a range of investment opportunities.

Added to that on the investment front, Glasgow was recently ranked as the number one large European city for investment readiness due to its “approach to innovation” and the strong partnerships forged between academia, industry, government and communities.

Glasgow is undergoing a period of transition where its heavy retail focus was perhaps exposed during the pandemic. In March, the council passed its city centre strategy with one of its aims being to double the city centre residential population by 2035 as well as a revitalisation of the city’s “Golden Z” to boost retail, hospitality and the night time economy. Despite what some commentators may say about the increase in purpose-built student accommodation in the city, a new report by Savills estimates that Glasgow has the largest supply and demand imbalance in the UK, with around 22,000 additional beds required to satisfy demand.

On the occupier front, the latest statistics from the Royal Institution of Chartered Surveyors (RICS) showed that overall demand for commercial property rose in the first quarter of 2024 in Scotland, and was the highest it had been since the second quarter of 2022.

In an attempt to summarise Knight Frank’s expectations for Scotland’s central belt cities of Edinburgh, Glasgow, the outlook is broadly similar. Their office markets are active with longer term signs of recovery and the professional services and TMT sectors showing the most demand. There is a positive outlook for investors despite wider economic issues and international interest is growing.

Scotland’s key cities have consistently performed well against the UK’s other regional hubs, so it will be interesting to compare and contrast the sentiment of those areas as we head to Leeds for UKREiiF.