Next time you’re walking through your local town centre, take a second to look up and count the number of ‘to let’ signs on display. Unfortunately, odds are in favour of there being more than just one or two.
That the ongoing economic downturn has played a huge part in the decline of the high street will come as no surprise, but the traditional retail sector has also been affected by the growth in popularity of online shopping and rising overheads. In fact, a recent report
by Drivers Jonas Deloitte highlighted that online sales already account for the equivalent of more than 60 million square feet of retail space.
Glasgow and surrounding areas have certainly not been exempt during these tough times. For example, in June it was reported that there has been an increase in vacant shops in the city centre over a three year period, from 8.3 percent to 10.3 percent. Regrettably this is not an exceptional example but is part of a recurring theme across the country.
Although high profile retail space across the major cities is proving popular, and is being quickly snapped up by major brands, much of this is to do with its competitive rental prices. The less glamorous secondary streets and smaller high street properties continue to lie, or are becoming, unoccupied. This is a significant problem for landlords and the Scottish economy.
The question is: can our high streets be revitalised?
Recent figures from the Local Data Company show 16.7 percent of shops in Scotland are unoccupied – a 1.3 percent increase on six months ago. This overall figure is higher than the UK average, suggesting that there isn’t much light at the end of the tunnel, certainly in the immediate future, for Scottish landlords with excess properties. However, the latest statistics do act as a sharp reminder for the Scottish Government.
In September 2011, in a draft Budget announcement, the government laid out plans to cut empty property rate relief by 2013. The idea behind the reduction in relief was that it would encourage landlords to bring empty property back into use, thus stimulating economic activity.
Fast forward a year, and in yesterday’s 2013/14 draft Budget statement finance secretary John Swinney announced that the Local Government Minister has now lodged an amendment to the Unoccupied Properties Bill that, if passed by Parliament, will be used to reward those who bring premises back into use.
However, there remains much uncertainty around the issue. For example, with the sector already struggling, would a reduction in relief actually boost demand for empty properties; and how will charging businesses more rates for empty properties encourage regeneration and economic growth?
Owners and tenants of empty property in Scotland currently receive 50 percent rates relief for offices and retail property and 100 percent relief on industrial properties – a significant reduction in costs when units are unoccupied. This is why it is absolutely vital that the government takes a measured approach and strikes an even balance between the interests of businesses in a struggling sector and the need to raise additional revenue to fund economic growth.
Similar tax-raising measures in England, introduced in 2008 have fallen short of expectations in the amount of revenue they have generated and continue to be roundly criticised for going too far, with landlords and tenants feeling like they are being penalised for having unoccupied properties. If the measures brought into force in Scotland can be more evenly balanced, they may be better able to achieve the desired outcome.
As it stands, precise details of the proposals are still unknown, although it has been advocated that the 50 percent rate relief could drop to 10 percent – depending on circumstances and the type of property.
What is clear is that few landlords deliberately keep properties empty, and the potential risk is that additional tax burdens will discourage investment in a sector which badly needs financial support.
Empty assets which become a financial liability may ultimately be stripped out or even demolished. Alternatively they could be let at vastly reduced rents, which wouldn’t necessarily be a good thing for the property industry as it would impact negatively on overall high street values, curtaining much needed investment.
Also, the public sector, particularly those parts of it which have consolidated to save costs, owns significant property portfolios which could be financially liable under a less beneficial tax regime, effectively increasing public expenditure.
The ultimate outcome of this will depend on the exact detail of the rate relief cuts, and the forecast benefit to the Scottish public purse, which itself is in real need of additional funds. What is required now is a careful approach which marries the interests of the critically-important property industry, and its retail owners, with the need for additional revenue to fund expenditure that delivers lasting economic growth.
Richard Spence is the director of property consultancy firm Drivers Jonas Deloitte.
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