As the Scots gear up to vote on independence, uncertainty over currency is hindering inward investment, but banks are poised to lend, say panellists at EG‘s latest Question Time debate
Panellists
John Bury, head of planning, Edinburgh council,
Colin Beattie; Scottish National Party MSP
Stuart Heslop, regional managing director, RBS
Daniel O’Neill, managing director, Ediston Properties
Nick Penny, director of investments, Savills
Why should investors invest in Scotland given the uncertainty of what currency we’ll be using?
NP: I think currency is the least of investors’ concerns. There’s also fiscal policy and transactional and ownership taxes. We have people who invest in Scotland whose currency is not pounds sterling. They’re German, American, Middle and Far Eastern. Ultimately, these investors will be looking for returns on their property.
DO: The currency issue’s really about independence. Investors simply will not invest in Scotland at the moment. That’s it. The uncertainty just doesn’t help a market which is in difficulty. It’s starved of capital and it’s full of attrition.
Where will finance for development come from?
NP: The prelet funding market has been active again, and a number of owner-occupiers are funding their own developments – particularly supermarkets. Also, private equity has been active. UK construction companies have got the strongest balance sheets they have had for 35-40 years and obviously the banks are back in the market.
SH: Interestingly, over the past six to12 months, we’ve seen contractors joining the funding game. They are contributing to the equity and getting schemes away successfully.
How are you getting the market moving again?
SH: The support will be there from RBS and the banking sector for development activity as soon as there is confidence to get schemes off the ground. That principally comes back to occupational demand and confidence. There is occupational demand out there, but not enough confidence yet for occupiers to sign the type of lease that’s required to allow a developer to develop a scheme.
Are you able to hit your lending targets? Some banks have said there are not enough supportable schemes.
SH: We started this year with a decent pipeline of deals to look at, but most of these deals are refinances from elsewhere rather than investment transactions in the market. We’re still not seeing assets trading in any volume in the market locally and being bought by local investors. Rather, transactions are being bought by institutional equity, which doesn’t necessarily need debt funding. But we do start this year with much more on our desks than we had from spring to autumn 2012.
What’s your constraint to working at capacity?
DO: Occupier demand is fantastic. We’re an industry fortunate not to have repeated the mistake of previous recessions, which was to overdevelop. But occupier and investor risk aversion all feeds into the difficulty. There are assets we’d like to buy but can’t because the vendors are not in such distress that they need to sell at the price their properties are now at. There’s an inertia that frustrates me.
Do we need to work together to improve our high streets?
JB: Shoppers’ habits have changed over the years, so high streets must become not just about retail, but also about leisure. Edinburgh’s retail performance has declined over the past 10 years partly because we do not have the range and representation of retailers that a city of this scale should. We’re good at restaurants, tourism and leisure, and so on, but we need to work with the industry to attract retailers.
CB: The government recently announced a fund aimed at making it easier for commercial properties that have been empty for a certain period, particularly in small towns and villages, to be converted back into residential use. The aim is to bring more people back into the city centre and support the existing shops and I think that’s laudable.
Where do you see the values of secondary stock going in 2013 and beyond?
NP: Up to 2008 we had one homogenous market where there was no differentiation between prime, secondary and tertiary. That’s changed over the past few years to include tertiary. Prime’s stabilised, secondary still covers a broad range of properties, but the gap will continue to shift outwards over the year before we have stability.
DO: I like the idea of secondary property as an investment opportunity in the next 12 months. We go back to those things that we learned at university: location, location, location. A poor building in a prime location can become a much better asset and that’s what we’re buying in Aberdeen, Birmingham and Edinburgh.
How will a rise in planning application fees affect planning authorities?
JB: In Scotland they are scheduled to go up 20%. It’ll mean the top fee is less than £20,000. In England and Wales, the top fee is around about £250,000. So even if we put the fee up 20% for major applications, it nowhere near covers the cost of processing them. Increasing fees enables us to resource the planning service better.
How will the market look in five years’ time?
CB: We will benefit from a post-independence bounce for about three years after independence. It will be a huge fillip for the economy. Also, the trams will be finished.
Nick Penny, director of investments,Savills.
