How the Middle East conflict is impacting Scotland’s property market, and what is still hot
“Uncertainty is always the enemy of transactions and that’s been reflected in what we’ve seen in the first quarter” – Alasdair Steele, Knight Frank
The conflict in the Middle East is taking its toll on Scotland’s commercial property market, experts have warned, though deals are still being done.
Investor activity is increasingly focused on “prime assets”, with a steady level of demand said to be holding up for properties offering “strong fundamentals, value potential or opportunities to drive performance through active management”.
The comments came as it emerged that nearly £390 million of commercial property deals had been concluded in the first three months of 2026, according to research from property consultancy Knight Frank.
The firm’s analysis of Real Capital Analytics (RCA) data found that there was £387m of investment during the first quarter, down 16 per cent on the average run since 2020.
Continuing the “flight-to-quality” trend of the past two years, the average deal size reached its second highest point for the first quarter of the decade so far at £16m, as investors sought safety in high-quality stock and prime locations. That compares to the 2020-2026 average of just over £11m.
Recent deals have included the sale of the Hanover Buildings on Edinburgh’s Rose Street to the Lothian Pension Fund for £23.4m, the Bond building on Queen Street in Glasgow for more than £15m, and Cuckoo Bridge Retail Park in Dumfries for £26.5m. Retail was the most active sector, accounting for some £216m of investment.
Real estate investment trusts (REITs) and listed property companies accounted for 60 per cent of investment volumes, with private investors accounting for another 25 per cent. International buyers represented just 11 per cent of the market - pausing for thought amid the situation in the Middle East.
Alasdair Steele, head of Scotland commercial at Knight Frank, said: “Uncertainty is always the enemy of transactions and that’s been reflected in what we’ve seen in the first quarter of 2026. While the year began with optimism, the conflict in the Middle East has undoubtedly had an impact on the market, with investors delaying decisions as they gauge the implications of higher energy prices, shipping disruption and wider geopolitical risk.
“At the same time, the rising price of oil has shifted expectations around rates cuts this year. All of these factors feed directly into property pricing and financing costs and, as these keep moving, reaching a price that both buyers and sellers can commit to becomes more challenging.”
He added: “Nevertheless, deals are still being done - particularly at the higher end of the market, which the average transaction size shows.
Activity is increasingly focused on prime assets, with a good level of demand for properties offering strong fundamentals, value potential, or opportunities to drive performance through active management. Edinburgh and Glasgow continue to show resilient market fundamentals, especially for prime assets.
“How the rest of the year takes shape will be heavily influenced by what happens in the Middle East and the impact that has on inflation, but the Scottish commercial property market has demonstrated its resilience in recent years and will no doubt continue to do so.”
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