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News Release

Scotland

Scottish Government rate reforms threaten to cripple industrial property market

1 million sq ft of industrial space could be demolished by landlords to avoid paying new higher rates


  • 1 million sq ft of industrial space could be demolished by landlords to avoid paying new higher rates
  • Occupiers will feel knock-on effect during a time of challenging market conditions.  

SCOTLAND, 22 January 2016 – Around 1 million sq ft of industrial stock across Scotland could be demolished as a result of the new vacancy relief rates proposed by the Scottish Government, according to leading property consultants JLL.

Proposals to reform levels of empty property relief on vacant industrial property from 1 April 2016 were introduced during the Scottish Government's draft budget in December 2015.

Under the new rules, empty industrial properties will experience a 3 month period of tax relief, after which time the level of relief is proposed as 10%. This is compared to 100% rates relief at present. For empty office space, 50% relief is proposed for the first 3 months, after which the level of relief is proposed as 10%.

JLL believes that the proposed reforms will result in damaging consequences for landlords, developers and occupiers.  

  1. With the supply of industrial stock at a real low, and with industrial private developers only just returning to the market after a long absence, the new reforms are likely to put an immediate halt on all speculative development on industrial stock.
  2. Existing warehouse stock will also suffer, with landlords potentially opting to demolish their units rather than spend money on refurbishment due to higher holding costs.
  3. Portfolio valuations will be negatively impacted with big losers being secondary assets which are either vacant or with short income and a high vacancy risk. JLL expects a drop in value of between 7 -12 per cent.
  4. Manufacturing and production occupiers, particularly those in Scotland's oil in gas sector, are likely to be hit hard. Typically these businesses require large building and yard spaces and the flexibility of additional space due to the short term nature of contracts. Under the new regime, the cost of under-utilised space will create a huge cost burden on company resources at time when the oil and gas sector is already facing extremely challenging market conditions.

    Commenting on the implications of the proposed changes, Andrew McCracken, Director of UK Industrial & Logistics at JLL in Scotland said: "The reforms proposed by the Scottish Government could have very serious and long lasting implications for Scotland's industrial property market. It is our belief that it will be extremely detrimental to existing investment and will force a number of landlords to reconsider future investment in Scotland, which will have a grave knock-on effect for job creation and future speculative development.

    "The proposals will have a negative effect on commercial property development right across Scotland, as well as the economy.  The proposals will stifle much needed speculative development, which was only beginning to return from the recession and will discourage the refurbishment of secondary industrial stock.  The lack of availability will inevitably drive rental levels upwards and could lead to potential occupiers considering options and alternative locations out with Scotland." 

    "We would strongly encourage the Scottish Government to reconsider the proposals and to properly engage with the property market to consider the implications of the proposed changes before implementation in April."

    The Scottish Government's consultation ended on 15 January with replies expected to be published in the coming months, before a considered response is given.