Scotland's commercial property market is witnessing a resurgence in activity, but with new challenges and complexities. Learn how buyers and sellers are adapting to this changing landscape.
The commercial property market in Scotland is experiencing a revival, albeit with a different set of rules and challenges. After a period of stagnation, transactions are picking up, but the process has become more intricate and demanding.
Gone are the days when the highest bidder would secure a deal.
Today, sellers are prioritizing certainty, funding strength, and the credibility of a buyer’s strategy. This shift is redefining how deals are structured and executed in the market.
Enhanced Scrutiny and Multi-Stage Transactions
One of the most notable changes in the market is the increased scrutiny of buyers.
Transactions are no longer straightforward; they often involve multiple stages, with initial bids filtered through second rounds. This approach allows sellers and advisers to assess not just the price but also the credibility of the buyer.
Eilidh Leveinassociate director at Savills, highlights the importance of understanding a buyer’s track record and the source of their capital.
“We’re seeing more second rounds and more scrutiny of buyers,” she said. “It’s about understanding track record and where the capital is coming from. That’s become really important, particularly with asset managers and complex funding structures.”
The Shift Towards Control and Due Diligence
The market has shifted from a focus on speed to a focus on control. Deals are taking longer to complete, with more emphasis placed on due diligence earlier in the process. This shift is driven by sellers who are now more concerned with execution risk—the likelihood that a deal will actually complete—than with securing the highest price.
Nick Pennyhead of Scotland at Savills, explains that clients are looking for buyers who can demonstrate clear funding structures, access to capital, and a credible route through the transaction process. “It’s about deal execution risk. It’s not necessarily about the top price. Clients are looking at who can actually deliver, who has the funding in place, who understands the asset and who can get through the legal and technical process without issues,” he said.
The Role of Debt and Financing Strategies
The re-emergence of debt has been a significant factor in unlocking activity in the market. Lending conditions have improved, facilitating transactions that might have otherwise stalled. However, this also brings another layer of complexity and risk, particularly during the legal process and detailed due diligence.
Buyers are adopting varied financing strategies to navigate this complexity. Some are completing deals with cash and introducing debt afterwards, while others are using bridging structures to maintain speed and flexibility. This diversity in financing is shaping how deals are structured and executed.
The Evolving Role of Advisers
As transactions become more complex, the role of advisers has evolved. They are no longer just brokering deals but are increasingly acting as intermediaries, managing negotiations, resolving issues, and keeping transactions moving forward. This problem-solving role has become more important as deals face greater friction from technical due diligence, tenant issues, or funding challenges.
Eilidh Levein emphasizes the importance of advisers in getting deals across the line. “Our role is ultimately to get the deal across the line. That often means stepping in when things get difficult, bringing parties together and finding solutions so the transaction can keep moving forward,” she said.
Focus on Income and Growth
Underlying these changes is a shift in how investors are approaching returns. Previous cycles were often driven by yield compression, where rising investor demand pushed up property values. However, the focus is now on income and growth. Eilidh Levein notes that “You’re not seeing yield compression driving returns in the same way. The opportunity now is in rental growth and asset management, that’s what investors are really focused on.”
This shift is reinforcing the trend towards selectivity, with capital concentrating on assets and sectors where income can be grown and risk can be managed. Despite the added complexity, both Nick Penny and Eilidh Levein are clear that deals are happening again, but they are more engineered, more scrutinized, and more dependent on collaboration between all parties involved.
