Investors take ‘reality check’ on property market – Daily Business

Investors in commercial property have taken a ‘reality check’ on current trading conditions and are pressing ahead with their plans, according to a property specialist.

Alasdair Steele, head of Scotland commercial at Knight Frank, says investors have accepted that the series of interest rate cuts expected at the turn of the year has not happened.

“At the beginning of 2025, there was a sense of optimism about the state of the economy and a sense that interest rates would be cut significantly by this stage in the year,” he said.

“But after an eventful first half eased over the summer, there is a reality check in the market and a growing realisation that there will be no quick fix to the challenges that were putting a brake on investment decisions.

“As a result, more investors are coming to the conclusion that they have to press ahead with their plans, which has helped activity levels. At the same time, the deep buyer pool for Scottish commercial property has provided support in what is in many ways a challenging market.

“Fewer deals are happening, but the assets that are trading hands tend to be higher quality buildings in prime locations and are attracting a good deal of interest.”

Retail has been the most active sector so far this year as its transformation creates opportunities. Along with industrials, it proved a bright spot in an overall market that saw investment 21% lower over the first nine-months of 2025 to £1.46 billion over last year’s £1.85 billion.

However, this was in line with the £1.45 billion average for Scotland between 2020 and 2024, according to new analysis of Real Capital Analytics by Knight Frank.

Mr Steele added: “From a sector perspective, the fairly even spread reflects the strength and depth of the stock available across different areas of the economy. Industrials have surged once again after the yield compression of recent years led to a slowdown in that market.

“Hotels remain popular – particularly in Edinburgh – while retail’s continuing transformation creates opportunities and offices are relatively consistent.

“With buyer and seller expectations edging closer together and a reasonable amount of stock expected to become available before the end of 2025, we could see a flurry of activity as the year draws to a close.

“But, much will depend on November’s Budget, with so much speculation about the direction of future tax policy and its impact on the UK economy.”