18 Sep 2017
David Melhuish, Director, SPF
The recent announcement from Derek Mackay, Scottish Finance Secretary, that speculative commercial developments will not pay rates until point of first occupation is a huge boost for the Scottish development industry and one which we have long advocated here at the Scottish Property Federation (SPF). This decision goes further than already positive proposals for a business growth accelerator from the Barclay Review of Business Rates and is a welcome signal of positive intent to compete for international and wider UK development capital.
It is also welcome that the Cabinet Secretary is to consider further the proposals for a surcharge on properties vacant for five years or more. It remains a disappointment however that the Barclay review did not recognise the lengths to which landlords will go just to secure a tenant, for example through lengthy incentive packages such as rent-free periods, and instead remained wedded to the notion that landlords are somehow shy of rent and that further ‘incentives’ to let their properties are required in the form of business rates penalties.
The decision not to apply rates on new build until point of first occupation as an incentive to grow the economy is hugely welcome and an area where the Scottish real estate industry, led by the Scottish Property Federation, campaigned hard for support to attract investment and development to Scotland. This is not a new proposal and some councils have often supported developers with a similar proposal on a case by case basis, or there have been relief schemes in locations from time to time that achieved the same policy. However, we looked for a Scotland wide policy as part of our Budget 2016 contributions and then pushed the idea strongly with the Barclay review, helped by members providing evidence of the cost of rates liabilities within their development appraisals.
With the supply of new offices and industrial stock at very low levels, we felt that the sector needed a positive signal to boost investment and the jobs brought by new commercial developments. The tax relief will apply even where there is a new tenant in place which should support businesses making commitments to relocate to new or redeveloped offices, shops and industrial premises. Taken collectively, this package will be particularly welcome for developers seeking to attract investors and occupiers for new offices or industrial properties, or for investors to improve and enhance their existing commercial property stock.
The Cabinet Secretary has also accepted and gone beyond the Barclay Review recommendation for an expansion of the fresh start rates relief scheme so that it is a more effective incentive to promote town centre businesses. Mr Mackay has added to this by including industrial property within the scope of the relief. We welcome also the intent to reconcile the large business supplementary rate with its English equivalent, although we would wish to see this done as quickly as possible.
We also campaigned strongly for the Government to carry out more regular rates revaluations and the proposal to move to a three-year revaluation cycle and crucially to a one-year gap between the tone date (the date of market rental assessment) and the revaluation coming into effect is welcome. While this should be combined with a review of how various property types are assessed, it should make for a closer relationship between the property market and the rates assessment, rather than gaps of up to seven years which allowed the rating system to become hugely disconnected with market reality.
But whilst we welcome the Scottish Government’s rates support for new development and indeed many of the Barclay proposals, we do have concerns around the position of listed buildings which often provide complex redevelopment challenges. The loss of rates relief after two years may make investors think twice about re-developing and bringing back into modern use older properties. Recently, one such developer has told me that if listed building relief was not available they simply would never have started their major Edinburgh-based regeneration project covering a large number of listed building sites. So, on this last point, we very much hope the Scottish Government will look at the wider challenges faced by those seeking to rejuvenate listed buildings in Scotland.