In December 2015, John Swinney delivered “Scotland’s Spending Plans and Draft Budget 2016 / 17”, and whilst most of the media attention focused on potential changes to the Scottish rate of income tax, the Finance Minister also included less well publicised reforms to empty property rates relief, particularly the treatment of industrial property.  

Previously, vacant industrial property had benefitted from 100% rates relief for the duration of any void period.  From 1st April 2016, the Scottish Government reduced this period of 100% relief to three months and thereafter, 10% relief.  Further minor changes to commercial (non-industrial) property were also introduced, summarised in the table below. 

The introduction of these reforms has a significant impact on the industrial property market and with the very short lead-in period, industrial investors have had  limited time to take any action.  Outside of Scotland’s prime industrial areas, vacancy rates remain relatively high and this is reflective of the oversupply of available accommodation and the lack of occupational demand. 

Since the implementation of these changes, there has not be enough time to see any evidence of the market’s reaction.  However, we anticipate that a number of negative outcomes could likely arise from this policy:

• Speculative development or redevelopment / regeneration projects could not go ahead as the associated holding costs of industrial property will result in considerable risk.

• Investor demand for industrial property is likely to be reduced as the risks of ownership will have increased.  For larger multi-let industrial estates, the increased shortfalls on vacant units will erode the net rental income generated by the estate and will reduce the value and marketability of these assets.  In addition, the reduction in net rent will impact on investors ability to service the debt repayments on any assets. 

• For some industrial landlord’s of dated stock in poorer locations, the likelihood of long term voids is very real and rather than be faced with vacant rates liability, could deem it financially prudent to demolish the property or render them incapable of beneficial occupation. 

The Scottish Government has proposed these changes as it concedes the system is not raising as much revenue as hoped.  However, we would question whether this change in policy will have the desired effect and Savills would suggest the likely knock on effects will be detrimental and reduce the level of investment in the Scottish industrial property market.