The market review concluded that 2013 had been a satisfactorily steady year, with a stronger appetite developing in the latter two quarters of the year for commercial property as an investment, and something of a transactional flourish in November and December to end the year.
The glimpse forward bit suggested that there was some optimism around economic growth and better accessibility to finance, which could lead to new developments coming on stream to meet supply and demand issues, not least in Edinburgh where it has long been recognised that there is a shortage of grade A space in the pipeline. I also highlighted the referendum as being a key imponderable no matter which way the vote went.
So, what actually happened in 2014?
This was perhaps the key event for the Scottish commercial real estate market in 2014. Most experts in our sector believed that a Yes vote would lead to a fall in values and a lack of confidence, at least for a couple of years, in Scottish commercial property. For better or worse, the No vote was greeted in our sector more with a sigh of relief than an air of disappointment.
Post referendum, there has been a general upturn in activity, especially on the investment side as funds take the view that pricing of Scottish commercial property is attractive. Q4 of 2014 has been busy but there remain rumblings about the issue of independence being re-visited, so we cannot yet say with absolute confidence that the constitutional debate is behind us.
The Ice Bucket Challenge
The rather peculiar craze of pouring a bucket of iced water over someone's head and then posting a video of the humiliation on social media swept the country in the summer. Nobody was safe, not even the Morton Fraser partners, most of whom agreed to take on the challenge in the public square outside the Edinburgh office at Quartermile, raising money for Macmillan Cancer Care in the process.
Morton Fraser Real Estate Team
In June we welcomed Elspeth Carson, Ken Carruthers, David Stewart, Mark Colquhoun and Ursula Currie as a new team into Morton Fraser's commercial real estate group. They brought with them some very high profile clients such as Tesco, Rockspring PIM LLP funds and others.
In November, Amy Entwistle was made up to partner.
Morton Fraser trainees
In September 8 out of our 9 trainees became qualified lawyers with permanent positions at Morton Fraser. Three of those lawyers qualified into the firm's commercial real estate teams, and we recruited a further newly qualified lawyer in September to add to these three.
We are very proud of these excellent retention rates, and they reflect our investment in our junior people as well as our success in continuing to grow the commercial real estate side of our business throughout 2014.
In Glasgow, perhaps the highest profile office investment deal was sale of The Guildhall in Queen Street for £29million - an 8% initial yield per annum. Morton Fraser acted for Rockspring in their acquisition through the UK Value 2 fund of Guildhall, a multi let city centre office and retail development, whose tenants include Clydesdale Bank and Royal Mail, as well as ground floor retail occupiers.
Demand for office space remained high throughout the year, but in Edinburgh the market was relatively quiet, reflecting a lack of available good quality stock and a lower level of investment activity.
Aberdeen was the most active office investment market in 2014. The effect that the oil price has on this remains to be seen, and with the Brent Crude oil price now below $90 it is perhaps no surprise that the Aberdeen office market has had a much slower second half year as compared to the first half. It may well be that 2015 will be a much more difficult year for Aberdeen.
In the retail sector, there is a widening divergence between prime locations which are performing well and remain attractive, and secondary retail assets which are continuing to face challenging times. The demand for prime saw a lot of overseas money being placed in the core centres in Scotland, and a selection of high profile deals throughout the year.
Industrial has continued to perform well throughout 2014, especially in Aberdeen where the market has been buoyant. In Edinburgh and Glasgow, there remains high occupier demand which is not currently being met by quality available space.
The market in general slowed in the run up to the referendum, particularly after the poll which showed the Yes campaign ahead. We saw some deals concluded with referendum clauses, and others put on hold, but equally we were involved in deals which signed pre-referendum with a post-referendum completion date. Everyone had their own view and for some the increased return proved a good decision. Although some commentators reported an immediate "bounce" after the referendum, our experience has been that the investment market took some time to pick up after the referendum. This may have been partly due to the perception that Scotland remained an uncertain market even after the No vote, and partly because of the effects of the wider global economy. Equally it may simply have been the necessary marketing lead in time with assets only marketed once the decision was known. This meant that October was relatively sluggish, but November saw more activity and December is turning out to be a bit of a deal frenzy in the run up to the year end.
Edinburgh's lack of quality office space was a feature of 2014, with most existing available space disappearing throughout the year. Development has taken some time to catch up, and therefore take-up was low. On the plus side, this has lead, at last, to a number of developments now getting underway. Moorfield are now up and running with the next office block in Quartermile, which I can see from my window. At present this is a speculative development, reflecting a degree of confidence in office occupier demand. The Artisan development at Caltongate, the Tiger scheme at Haymarket and the SLI / Peveril development at St. Andrews Square are all also underway, with most scheduled for completion during the course of 2016.
Morton Fraser are currently acting on the redevelopment of Norloch House in Edinburgh City Centre which is due to offer four floors of office space onto the market around the start of Q2 2015, and there are other similar schemes involving existing buildings that will provide some additional space during the course of next year for occupiers with time critical requirements.
There are some notable office development schemes that got underway in Aberdeen in 2014 and so the pipeline there looks healthy for next year. It is a similar story on industrial in Aberdeen, with oil and gas fuelled demand currently outstripping supply and a variety of new industrial projects at varying stages of development.
In general, the hotel development market remained strong across the country this year, and there remains a strong demand for the right sites for hotels here in Edinburgh. In the retail sector supermarket chains pressed ahead with their convenience stores programmes, whilst seeking to diversify their superstore offer, and in the core centres restaurant operators have remained active.
Finally, the residential market has been much more bouyant, with lots of activity from a number of the key residential developers throughout 2014. The LBTT rates announcement raised a number of eyebrows, especially the steep increase to 10 and 12%, which will catch a number of the new build schemes. In the short term, there has been a flurry of activity in the residential market, but for the house builders, it adds stress to an already fragile recovery programme.
At Morton Fraser, 2014 has been a busy year for our property development teams, with many of our clients finding the financing to match occupier demand and kicking off some very exciting new projects.
Morton Fraser continued to build on our expertise in the student accommodation sector in 2014, advising a variety of clients on sales, developments, acquisitions and development financings. We now have a 5 partner team who are heavily involved in all aspects of student accommodation projects.
There have been new schemes being built all across Scotland this year as both developers and investors continue to be attracted to this particular asset class, which is generally viewed as offering strong yields as well as rising rental income.
Particular hotspots have been Edinburgh, Glasgow and Aberdeen, and the combination of student demand and investor appetite looks set to keep this sector buoyant right through 2015.
Morton Fraser has, for many years now, had a reputation for dealing quickly and effectively on large scale portfolio sales and acquisitions. In October we acted as sole adviser to Heineken UK on the sale of 111 tenanted pubs, one of the largest tenanted pub deals to complete in the UK this year. Unconditional contracts were exchanged within just 5 working days from the preferred bidder being selected. Quite an achievement.
All in all, it has been an interesting and busy year - and we approach 2015 with quiet optimism and renewed enthusiasm.
Best wishes to all of our readers for Christmas and the New Year.