Following the changes announced by the Scottish Government in its December (2015) budget, from April 2016, relief on empty industrial properties is to be cut from 100 per cent to 10 per cent after three months' exemption, while offices and shops will see their exemption changed to 50 per cent relief for three months, falling to 10 per cent relief thereafter.
The change for industrial properties follows the 2008 move in England to charge full rates after six months exemption. In addition, the Small Business Supplement, which is paid by larger businesses to fund relief for small businesses, will rise from 1.3p in the pound to 2.6p in Scotland, while remaining at 1.3p in the pound in England.
The reform comes at a time when Scotland is experiencing early signs of improvement in the speculative industrial development market. However, while the announcement has sparked widespread speculation in the market, landlords of well-located commercial property in Scotland may benefit as new development cools off once more. Such circumstances should allow industrial property owners the opportunity to take advantage of the well-documented shortage of good quality, well-located industrial property through refurbishment of existing stocks to meet the healthy level of occupier demand of 2016.
With the changes undoubtedly bringing adverse effects to the industrial market, a long-term vision for Scotland would see new speculative development ring fenced or otherwise excluded from empty rates payments. Exclusion, if only for an extended initial period, would help dilute risk to developers and therefore support new industrial development, although European State Aid limits may still restrict the amount of additional relief or exemption that could be given.
If you’d like to discuss any aspect of the upcoming rating period, contact Savills Rating.