How significant is the independence debate to the Scottish property industry?
Nick Waugh, commercial property director, Buccleuch, and Scottish Property Federation committee member
It is an issue, and the Scottish Property Federation view is that Scotland must just make sure that it’s open for business and that whatever lobbying takes place and whatever the agenda is through the independence debate, it protects the credibility of Scotland as a place that’s open for business.
There is uncertainty because any change creates an atmosphere of uncertainty, and while the debate focuses on which year and how old you’ve got to be to vote – and we’re not going to see the Scottish government or the Scottish National Party’s agenda until the autumn of next year – that will breed uncertainty.
If you had an opportunity to invest your money at a 10% yield on a safe covenant in Newcastle or Dundee, you might just say, well, on the balance of things, from Edinburgh I can get to both quite quickly. I’ll just go and put it in Newcastle for that reason.
Is the debate making some investors think twice?
Bruce Patrick, head of Glasgow office, Savills
If you ask your average fund manager, who inhabits the West End of London, they’re calling this constitutional risk, and that, plus the potential for empty rates to go up in Scotland next year, means we’ve got uncertainty squared.
I haven’t yet heard a fund manager say, we’re selling out because of risk, but in a market where you don’t want the fund managers to rein back, there is reining back.
So there is an effect on investor appetite. But, again, that creates potentially another level of mispricing. If you’re out there as a buyer, you may bet that there isn’t going to be independence in Scotland, that David Cameron will come up with some enormous sop to Salmond, whether that’s a devo-plus, devo-max, independence-lite scenario.
You may then bet that, ultimately, there is going to be a better deal for Scotland going forward – whether that’s reducing social protection costs, giving us a geographical share of oil, getting more people off the dole etc – and Scotland actually could be a better place to live and to work. And because there could be a lack of buyers, that’s where we, as investment agents advising our clients, are saying there could be mispricing coming into the market. And that’s what we’re trying to find on a daily basis.
Remember Salmond is a very, very savvy political operator. He has been given an absolute open goal in that Cameron seems to be advised by George Osborne to defend the government’s AAA rating as much as he can, and it would appear that the UK public sector finances are going to get progressively worse. As we go towards 2015-16 I suspect that Cameron is looking at the oil revenue and saying, “I absolutely cannot do without that because it’s going to affect a whole raft of issues in the UK economy.”
I suspect that Cameron at some point will buckle and say, “Right, Salmond, you know, to stop independence, what do I need to give you?” And if that’s your bet, and everybody else has gone, and you can fill your boots, then that could be good.
Does the independence debate matter to the man on the street?
Phil Miller, chief executive, Miller Developments
It is an absolute one-way bet for Alex Salmond. On the one hand he gets independence, on the other hand he gets more power, which is tantamount to independence, so there’s politics going on here.
I was walking up from Queen Street station [in Glasgow] and there was a crowd in the centre of town at 7:30am. There was lots of cheering, and it reminded me of being in the centre of Athens – when you go there and you come out of your hotel, and everybody’s complaining about everything. I wondered whether there was an independence debate with people complaining about being controlled from England and everything else. But it was actually the Apple shop opening up and everybody queueing for iPads. That’s probably where the average guy in the street is. A lot of this is just media and politics.
Will the bank lending climate change?
Andy Mallin, Santander regional director real estate – Scotland and the North East
Macroeconomics will drive things. There are clearly banks needing to deleverage their property exposure, at the same time bringing their overall balance sheet exposure down because the cost of capital’s changed. Basel III is going to have a huge impact on the cost of capital for property, going forward. Most banks’ cost of their own debt and raising capital in the markets has gone up significantly.
The cost won’t come down significantly over the next three to five years. We can see a limited appetite for new debt out there, and a realisation that the balance sheet that they have is what they’ve got, and the potential exits are limited. It’s more about a refinance culture and a rollover culture than it will be about new debt out there.
We saw in 2007-08 that the funding available to banks to lend to property and to other parts of the SME end of UK plc, if you want, dried up significantly or became prohibitively expensive. Now, that’s a cost that has to be passed on. Until that cost can be based and funding can be put out for five to 10 years, for the banks, you’re not going to see cheap money coming back. So we are in this new sate of “normal”, if you wish, for the next three to five years.
Should the Scottish government do more to drive development?
Allan McQuade, business infrastructure director, Scottish Enterprise
The challenge for us if we get a call from that market is how do we become involved in a way that stimulates the market without becoming a crutch to the market. So we’re looking to say, and to see, how can we use government covenant as a way of helping stimulate the market.
These are very early days in our thinking on it, but if you look two years ahead, for example, in Glasgow, if there’s no new office starts, then if an inward investor comes to the city looking for a big floorplate, you won’t have anything to offer them, and the Scottish economy will have lost. So we’re looking at it from that perspective.
We’re thinking, do we have to intervene here? We have a progressive government and, if you get development, you get employment through the construction industry, which is suffering as badly as the professional side of the property industry.
Chairman Damian Wild, editor, Estates Gazette
