Foreign investors bet on Edinburgh’s office market last year, pushing up total investments to a 10-year high of £426 mln, according to a new report by Savills.

edinburgh skyline

Edinburgh Skyline

German buyers in particular have been drawn to the Scottish capital, investing £310 mln, 73% of the total and 170% above the 10-year annual average. German-based funds like Deka Immobilien and Truiva were particularly active, accounting for over half of foreign investments in the sector.

The strong foreign interestment saw total transactions exceed the 10-year average by 73%, according to Savills. The uncertainty caused by Brexit was offset by the devaluation of sterling following the referendum, which made assets 10 to 20% cheaper for euro-denominated investors.

‘Despite a turbulent political year, Edinburgh’s commercial property market has attracted the greatest volume of inward investment in a decade,’ said Rod Leslie, associate director in the investment team at Savills Scotland. ‘Following the UK’s vote to leave the EU there was a brief pause as investors took stock before returning to the market, searching for prime, well-let assets on long leases as part of a defensive investment strategy.’

The positive trend is set to continue in 2017, Leslie believes, as sentiment in the market is still bullish. Recent deals such as GLL Real Estate and HSBC Private Bank’s acquisition of Exchange Place 1,2 & 3 from Aberdeen Asset Management for £80m is proof of this, he said.

Edinburgh is still attractively priced relative to other regional cities and prime yields currently stand at 5.5%.

Savills said foreign investors’ interest in the UK regions which offer the best value will continue to increas in the months ahead, especially in locations where availability of refurbished space is low and demand is likely to be supported by ‘northshoring’ away from London.

‘Generally we see the key regional cities, including Edinburgh, as potentially more defensive to Brexit than London,’ said Mike Barnes, Scottish analyst in Savills’ research team. ‘We expect that the pound will remain comparatively weak throughout and after the Brexit negotiation process and this, combined with the income security that the UK lease offers, will stimulate a steady rise in non-domestic interest in commercial property in the UK, as we have already seen in Edinburgh.’