Overseas investors replaced UK institutions as the dominant force in Scotland’s commercial property market in the decade following the 2014 independence referendum.

New research from independent property consultancy Knight Frank reveals commercial property north of the Border attracted much more international interest in the decade following the 2014 independence referendum than in the 10 years prior to the vote.

The consultancy’s study of Real Capital Analytics’ data found that, in the decade leading up to the 2014 referendum, UK institutional investors accounted for the largest share of investment in Scottish commercial property, at 36% on average.

However, during the decade since the vote, international investors averaged nearly half of investment volumes at 48%, rising from 31% between 2004 and 2013. This is well ahead of UK institutions’ annual average of 26% in the 10 years since the referendum.

Knight Frank observed that average annual investment volumes have “largely remained consistent”, at £2.45 billion pre-referendum and £2.48bn in the decade that followed.

 

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It said: “Both 10-year periods included major events that affected markets, including the global financial crisis, Brexit and the Covid-19 pandemic.”

Knight Frank noted that, so far in 2024, international investors have accounted for 25% of investment volumes, while real estate investment trusts and private buyers have represented 31% each.

However, looking back over the longer term, Knight Frank head of Scotland commercial Alasdair Steele said: "A lot has changed in the 10 years since the independence referendum - both directly and indirectly related to the vote being held.

“Understandably, in the immediate build-up to and aftermath of the referendum, UK institutions paused investment in Scottish commercial property because there was some uncertainty over whether those assets would remain within their mandate. That created an opportunity for international investors to fill the gap and, with the exception of this year, they have been the largest buyers since 2015.”

Knight Frank noted that its survey showed that, over the 20 years analysed, there had also been “a number of changes to Scotland’s economy”.

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It observed that retail’s share of commercial property investment volumes dropped from 43% pre-referendum to 30% in the 10 years afterwards, “as the sector faced structural challenges from consumers shifting to e-commerce”.

Knight Frank added that investment in hotels rose from 11% to 16%, “as Scotland grew in popularity as a tourist destination”.

The property consultancy flagged figures from the Scottish Tourism Observatory showing the number of international tourists visiting Scotland rose from 2.3 million in 2013 to four million during 2023.

Accountancy firm EY’s annual Scotland attractiveness survey published in July showed Scotland won a record number of foreign direct investment projects in 2023.

And the nation last year retained its position as second only to London among UK locations in attracting new inward investment projects, according to the EY survey.

Scotland won 142 FDI projects last year, a 12.7% rise from the previous record annual figure of 126 achieved in 2022. This was the fifth straight year of increase, and EY noted Scotland was the only part of the UK to achieve this.

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The increase in the number of inward investment projects won by Scotland in 2023 was more than twice as sharp as the 6% rise seen across the UK as a whole.

Scotland’s real estate sector bucked the trend of decline elsewhere in the UK in the first half of 2024 in terms of attracting investment, research published last month by global property adviser JLL revealed.

JLL highlighted a positive outlook in Scotland for investment in this sector, taking in commercial and industrial property and residential development, during the rest of this year and into 2025.

Investment in Scotland’s real estate sector increased “considerably” in the first six months of the year, in contrast to a sharp fall across the rest of the UK, the JLL research revealed.

JLL declared: “Scotland bucked the trend seen elsewhere across the UK.”