David Peck: Rate relief cut slams door on chance for recovery

WHEN the Scottish Property Federation recently held its annual conference at Dynamic Earth in Edinburgh, the runaway hot topic was the Scottish Government’s proposed reduction of empty property rate relief from 50 per cent to 10 per cent.

The Government’s stated intention is to provide an incentive for the re-use of empty property, with particular focus on the high street. However, the plans to scrap property rate relief on empty commercial properties could have serious consequences for property developers, investors and not least local authorities and businesses. I cannot over-emphasise the dire timing of this grossly unfair proposal and the detrimental impact it could have on the industry. The cut will cost businesses, including the public sector and property industry, around £18 million per annum from April 2013. It will act as a major inhibitor to new development and we are currently actively seeking concessions, if not the full retraction of the Government’s stance on this issue.

On the day of the conference, the Bank of Scotland released figures that reported the Scottish economy to have grown by 0.5 per cent during the last quarter. Whilst heartening in itself to see growth, the detailed construction industry figures painted a far gloomier picture. The industry receded by 1.5 per cent. Clearly the industry is struggling to sustain itself and there is no need for us to exaggerate the grave market conditions we’re currently facing.

This isn’t just about the construction and property industry, although they are clearly taking the brunt of the job losses, but across the board with a significant consequential impact on advisers, property companies, councils, banks, architects, engineers, quantity surveyors and even lawyers.

Empty property rate relief supports ratepayers, including public sector ratepayers, who are deriving no income or beneficial use from a commercial property. It is therefore, in many ways, a tax on failure. This is a tenant-led market and landlords regularly offer considerable incentives to retain or attract businesses to their properties. If properties are empty this is because of a lack of demand. The idea that property owners would deliberately keep shops empty rather than have paying tenants generating income is simply wrong.

This proposal also comes at a time when the retail sector is going through significant structural change. There is no doubt that the industry has to face the reality that there are too many shops, too little spending power and rising competition from the internet. I am quite sure there is an opportunity for real action to invigorate the high street and this isn’t a kneejerk reaction against out-of-town development but recognition of entrenched consumer behaviour and a need for change.

Whilst we recognise that the Government must look at additional routes to generate funding in these times of austerity, a cut in empty rates relief will absolutely harm Scotland. The development pipeline, particularly in the centre of Scotland’s main cities, has already stalled. Furthermore, the policy will also lead to vacant property being demolished unnecessarily, resulting in a lack of modern, prime property stock and a lack of ability to attract retailers and businesses.

This policy has failed to work in England, where occupancy has not increased as a result of withdrawing empty property relief.

The Scottish Government has fundamentally underestimated the additional costs to businesses and the added burden to local authorities and companies who currently have excess stock. Increasing empty property rate costs adds further risks to development, businesses and investors – so this sends a negative signal to the business community in Scotland and beyond.

Alongside apprehensions surrounding empty property rates, difficulties experienced with the planning process, concerns around the introduction of the health levy, pragmatic climate change regulations and a requirement for further investment in the infrastructure of Scotland’s cities were all covered at our conference. Commercial property is an important bellwether for the Scottish economy and the health of the industry is down by every measure. The Scottish Property Federation and its members are asking the Scottish Government to do what it can to help us unlock economic growth and development to improve Scotland’s economic prosperity.

• David Peck is managing director of Buccleuch Property and chairman of the Scottish Property Federation