Scotland records largest office deal in its history

This was a year that witnessed war waged by Russia on Ukraine, mounting energy pressures, ongoing Brexit difficulties, and a deepening cost-of-living crisis.

Yet, it also saw the largest office deal on record in Scotland with the sale of the £215 million Grade A 177 Bothwell Street development in Glasgow in April, by the HFD Property Group to Spanish real estate giant Pontegadea Inmobiliaria.

Colliers reported that £1.7 billion of commercial property deals had been sealed in Scotland by the end of the third quarter, about 15 per cent up on the year before.

READ MORE: Commercial property investment slows in Scotland

Stephen Lewis, managing director of HFD Property Group, the Scottish business behind the Bothwell Street flagship, said the coming year will bring challenges amplified by inflation.

“Looking back, 2022, was more positive than perhaps we might have expected it to be, given we had the continuation of Brexit, Covid, the war in Ukraine, and the cost-of-living crisis that emanates from that, there could have been a turn in the economy before it had actually arrived, so I think we got quite far down the line before the inevitable has happened,” said Mr Lewis.

Stephen Lewis said occupiers are looking for high quality premises (Image: HFD Property)

“Business confidence has generally been good, occupier activity has been strong. We let 316,000 square feet of office space in Glasgow’s biggest office during a global pandemic and Brexit and everything else, and that is indicative of, whilst the overall demand for office space for individual companies is slightly reduced, reflecting the move to hybrid working and others, the demand for quality has increased. There has been a flight to quality.

“So, I think 2022 has been remarkably resilient and positive, notwithstanding retail has been hit and city centres have had it more difficult because of the reduction in footfall."

Glasgow's West End Retail Park and Cumbernauld Retail Park were sold this year while Scotland's largest undercover precinct, East Kilbride Shopping Centre, went into administration.

"I think 2023 will be harder. There is a recession here, not technically, but it is definitely coming," Mr Lewis said. 

READ MORE: Scottish property firm seals major tenants for historic Glasgow site

"I think we are in for a bumpy ride. But, in all of that, because I am ever the optimist, there will be opportunities and there is a need to repurpose and reposition a number of properties and whilst I think funding will be acutely difficult, those that are well capitalised and can move for opportunities without the need for external funding will do really well.

“I think that is from a property perspective and a business perspective and we are in that position, so we are very fortunate that way.”

177 Bothwell Street is Glasgow's largest single office building (Image: HFD Group)

However, he added: “I think there is still a need to continue to lend when refinancings come up and not bring the shutters down on that and avoid the position where people are either unable to refinance their assets or it is very difficult to do that. So, the banks have a very important role to play, as do the alternative lenders.”

Alasdair Steele, partner and head of Scotland commercial at Knight Frank, said the year started positively but there were increasing pressures.

“If you look at the occupational markets they remain pretty strong, which is good,” said Mr Steele.

READ MORE: 'High profile' Scottish shopping park sold to private investor

“The industrial market seems to have adjusted fairly quickly, and I think that the weight of money that is out there means that we should see an uptick in transactions in the new year hopefully when things stabilise.”

He said the mini-budget was “a disaster”, adding. “Uncertainty is the enemy of transactional business.”

Following “repricing” a more stable environment “will encourage people to invest”, Mr Steele said.

“There is a lot of money waiting in the wings and commercial property is usually seen as a fairly safe bet in times of higher inflation."

He added: “Where they feel the pricing is right and has adjusted to a level that is acceptable again, and when that does happen you may get an element of competition coming back between those people looking to buy which could move pricing slightly the other way.”