Interview: David Peck, managing director of Buccleuch Property

By Nathalie Thomas
Published on Monday 21 November 2011 00:00

RECESSIONS force people to move where the work is, but for David Peck, who is fresh back from a trip to Kazakhstan, Central Asia is one step too far.

The managing director of Buccleuch Property was in Almaty visiting a friend and former colleague who has spied an opportunity in Kazakhstan’s under-developed commercial property sector. Peck was amazed by world’s ninth-biggest country, but for now Scotland and the rest of the UK pose enough challenges.

“Perhaps in different circumstances,” the mild-mannered Peck jokes, adding that an office building bought by Buccleuch before the recession just off Moscow’s Red Square has proved enough of “an experience” for the Scottish developer.

Buccleuch is trying to sell its Russian asset, and for the next year Peck’s thoughts will very much be at home as he occupies himself with the chairmanship of the Scottish Property Federation (SPF).

His decision to step up to the role could not come at a more critical juncture for the country’s bruised commercial property sector, which – according to the SPF’s own figures – is heading for a new low.

The lobby group believes the value of commercial property sales will sink to £1.6 billion this year – a far cry from the sector’s pre-recession high of £6.3bn.

Since 2008, every developer and agent working in the Central Belt’s hyper-competitive (and ultra-gossipy) market has known someone affected by the banks’ need to rid themselves of vast swathes of their property loan books, which were built up during the boom times when leverage and gearing was almost a badge of honour.

Peck – who spent ten years of his career as development director for the now defunct Kilmartin Property Group – is no exception to that rule.

He tries to put a brave face on the market’s outlook, saying stability could return in the next two to three years, depending on how the eurozone crisis pans out. But he suspects that, on the corporate front, there may be more pain to come as the banks, particularly Lloyds Banking Group, continue to take an axe to troublesome loans.

He says he would “like to hope” those companies still standing after the last cull – which saw the demise of great names such as Applecross, Kenmore, Elphinstone and Kilmartin – would also be able to survive this second downturn but he is not overly optimistic. He also believes the over-crowded consultancy market may soon see some down-sizing as there are more agents than work.

“There may be companies out there that have so far managed to bump along because they have managed to maintain their cash flow even though they may have portfolios that are still significantly under water from a loan-to-value covenant,” he says.

“How the banks will deal with those in the medium-term is going to depend on when they start to see some value growth, but you might see a more phased demise of some of those businesses. I suspect there probably is more pain to come, but on a measured basis [compared with the previous recession].”

With the sector suffering enough problems without the added burden of Scottish Government legislation, the SPF has drawn up an eight-point campaigning action plan.

The group has already written to Finance Secretary John Swinney, urging him to reverse his decision to partially phase out empty property relief, which Peck says will strike the sector hard at a time when it can ill afford any extra financial burdens.

But there are a number of other areas of concern, including the looming health levy on large retailers and a consultation on proposals that would see landlords, whenever they sign up a new tenant, having to spend vast amounts to retrospectively meet the requirements of environmental legislation from 2002.

In the current climate, Peck argues that any regulatory changes in Scotland are likely to act as a disincentive to potential property investors, who are extremely reluctant to leave the safety of the London market.

“Anything that is going to be seen as a change to current policy is going to act as a disincentive whether it’s bringing Scotland into a status quo with England or not,” he says.

Despite the bleak short-term outlook, Peck says there could be some potential bright spots on the horizon – if only confidence among institutional investors in particular was to be restored.

He points to both the Aberdeen and Glasgow office markets by way of example. In the Granite City, big companies with major space requirements are crying out for new developments, he says, while Glasgow is also fast running out of top quality office space.

“The Aberdeen market typifies the sort of issues we are facing in a funding capacity,” Pecks says. “We have got strong demand from occupiers yet you have got developers with pre-lets and demand that is absolutely provable, but who can’t fund new development because the banks just aren’t willing to lend. You’ve also got institutions at the moment who are sitting on their hands and it’s leading to inactivity and a frustration in demand.”

Although Scottish Enterprise is in the early stages of research that could eventually lead to the agency intervening in the Glasgow office market, Peck says that, in the meantime, the sector is praying for a measure of confidence to return.

“Property always goes in cycles and at one point we will see some good growth. But in the meantime, we are going to see a fairly flat picture for five to seven years, maybe longer,” he says.

BACKGROUND

David Peck is managing director of Buccleuch Property, which was set up eight years ago as the commercial property arm of the Buccleuch Group.

The business has an exposure to the market of around £350 million, with interests in properties across Australia, the US, the UK and the rest of Europe.

Before joining Buccleuch, Peck was development director for Kilmartin Property Group for ten years, and previously worked in London for Taylor Woodrow and Drivers Jonas.

He is a keen cyclist and every year takes party in the Buccleuch property challenge, a six-hour charity race that involves cycling, orienteering, running and other “secret disciplines”.

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