The significant Scottish investment market activity of 2014 has continued this year and is providing investors with more attractive income returns relative to other parts of the UK. In addition to performance through yield shift, as a result of the weight of money seeking product, those who have invested in the key prime markets are likely to witness further strong performance. This is on the back of improving occupational markets, generating demand-driven rental growth and stimulating office development in Edinburgh and Glasgow.

Investment activity in Aberdeen has reduced since the fall in the oil price. Yet, the city has some excellent yield and covenant product in the office and industrial sectors. Generally, leases in the Aberdeen market are drafted on longer terms, with guaranteed income performance through fixed rental increases.

Several of the UK institutions continue to be active in what is a very competitive prime commercial market. Better quality and higher yielding product in the secondary market is also subject to some strong interest, particularly from US investors. Despite some yield compression in relation to prime, due to low levels of stock and stronger occupational markets, Scotland still offers a discount compared to other regional cities.

The actual quantum of discount on prime will be tested with Atria 1 and 2 in Edinburgh now on the market with a price tag of £100m, and an initial yield of circa 5.5%. Savills has an optimistic outlook for the Scottish investment market, as investment and development opportunities remain undervalued relative to similar stock in other UK regional cities.

Private equity-backed fund managers have been purchasing core-plus and value-added office portfolios in the supply-constrained Glasgow market. These include the purchase of 1/3 Atlantic Quay for circa £61.5m, Granite House for circa £26.8m and 150 St Vincent Street for circa £15.4m. It will be interesting to monitor the level of interest from equity providers for future prime office buildings in Glasgow, as major development projects could be too lengthy for most IRR (Internal Rate of Return) focused investors.