Headquartered in London, the firm advises clients ranging from individual owners and buyers to large developers, investors and corporate tenants with more than 20,000 staff operating from 488 offices in 57 territories.
It can trace its roots back to 1896, with deals it has supported ever since, including a private sale of Stonehenge and the sale of Chartwell to Winston Churchill.
The company opened in Edinburgh in 1913 and now Mr Steele is also responsible for the day to day running of the office in the Scottish capital. Having worked on investment teams in London and Scotland, he left DTZ – now known as Cushman & Wakefield – to join Knight Frank in 2010, where he is a partner.
Transaction volume in Scotland has held up remarkably well throughout the pandemic and we have seen prices in key areas of the market hold their pre-Covid levels or even harden – prime offices, industrial and retail warehouses are the obvious examples.
One of the main reasons investors still want to buy in Scotland is that the job markets have also held up surprisingly well. Baillie Gifford’s pre-letting of 280,000 square feet at M&G’s The Haymarket project in the midst of the pandemic was a notable indicator of the health of Edinburgh’s office market.
Looking ahead, do you anticipate big changes in the allocation of investment capital origins? If you look specifically at foreign investment, it has funded the majority of deals in a few years but has fallen to less than half in 2021… and how big is the Brexit impact?
Sources of capital will ebb and flow over time but what is crucial is that the market for Scottish property investment has now become truly global. It is no longer dominated by UK investors and there is a lot of interest from all corners of the world. There is currently plenty of money from both the Middle East and the United States looking to invest in Scotland, as well as continued interest from European and UK institutions.
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The drop in figures in 2021 appears to be just an outlier, caused by a small number of large deals by UK investors skewing the figures – the long-term trend should continue to show strong interest from foreign capital. It’s hard to get a clear picture of the impact of Brexit right now, with so much happening around the world. I think this will take a while to get through.
It’s complicated and there are a number of different aspects to keep in mind, such as whether European buyers will sideline the UK and other international investors replace them.
Already existing trends in shopping habits have been accelerated during the pandemic, with significant growth in online shopping boosting the industrial sector. Retail warehousing has also performed very well as people have become more accustomed to shopping in a retail park rather than going to a city centre.
Yields continue to harden and all research suggests that tenant demand will exceed supply, with rents continuing to rise. The current increase in construction costs could further restrict the development pipeline in the short to medium term.
In terms of the office market, what does 2022 hold in store for Scotland’s major cities and how much has the growth of the burgeoning tech sector fueled demand for prime space?
It looks like another strong year – tenant demand remains robust and significant sales are planned in both Edinburgh and Glasgow.
The pandemic has accelerated the transition to a higher quality work environment – companies want their workspaces to be a stimulating and collaborative place where their employees want to work, rather than the old-fashioned idea of rows of desks, so there will likely be a flight to high-quality, functional buildings.
This is also influenced by the environmental, social and corporate governance agenda, which has very quickly become of enormous importance to both owners and users.
The tech sector is really important, especially in Edinburgh and Dundee, while Glasgow recently had its first Tech Fest. It’s kind of a snowball effect when companies want to be close to like-minded organizations.
We expect demand from tech users in each of these cities to continue to grow as Aberdeen gradually recovers from the challenges of the pandemic, with office take-up in the first quarter of 2022 at the strongest level for the entire period last year.
What about the stationary trade? There are concerns about its longevity, and big anchors like Jenners in Edinburgh are facing a reallocation – you mentioned the potential to convert retail space into prime office properties…
Our main roads have had a really tough time of late, but there are increasing signs of recovery. Retailers have adjusted their offerings to accommodate new shopping patterns, and it’s exciting to see the rebirth of traditional inner-city retail spaces.
If you take Edinburgh for example, we see that Prince Street is becoming much more leisure-oriented, while George Street has recovered surprisingly quickly from a retail perspective, with terms agreed for eight of the 11 units on the street that there were previously unoccupied.
What was the most important real estate deal in your career – and why?
I would say it was the sale and leaseback of TSB Bank in Falkirk. It wasn’t a big deal, but it was my first. I didn’t really know what I was doing, and I remember standing by the fax machine at the closing date, hoping I’d at least get an offer.
In the end, that’s exactly what I got – an offer, but it was a good one, and despite my naivete, the deal went through. It was an odd mix of relief and exhilaration – probably still how I feel today when a deal goes through!
You’re an avid environmentalist and a key driver in Knight Frank’s collaboration with Surfers Against Sewage and the announcement of becoming a plastic-free company. Can you explain that in more detail?
I have always been very interested in the environment – especially the marine environment. I’ve been a member of the great charity Surfers Against Sewage since I was a student in Aberdeen. Recently, it has been working to encourage communities to commit to reducing their use of single-use plastic.
I was sitting at home one Friday night and decided to email our CEO to propose that we as a company go plastic free. It felt like a good idea at the time, but I wasn’t so sure when I didn’t get an answer! It turned out he was away for the weekend and responded on Monday that he was fully behind the idea.
It’s been phenomenal ever since – all our employees received reusable coffee cups and soda cans, and we’ve massively reduced our plastic footprint across the business. I think it’s a sign of how bigger companies have changed – it’s no longer just about making a profit, but also about your impact on society and the world in general.
Have you had one or more mentors in your career and do you mentor others? If so, what benefits have you noticed?
I think mentoring is extremely important, especially for young people. I’ve been fortunate to have worked with a few people throughout my career who have mentored me and who I knew I could fully trust and rely on – it makes a huge difference.
I mentor young people through The Prince’s Trust and have also signed up for our internal mentoring program at Knight Frank. If I can help people develop their careers the way others have helped me, that would be great.