By Colin McLean
Can Scotland adapt to the turmoil in property?
Changes in consumer behaviour and technology are making new demands on office space, retail, and our homes. The worldwide real estate boom, driven by a long period of low interest rates, has peaked. Higher borrowing and construction costs have delivered a reality check for the sector, turning attention to how existing buildings can be repurposed. It presents opportunity for Scotland’s cities and towns, but thoughtful planning is needed.
International problems may seem far removed but there is a warning in the collapse in New York office values and the unwinding of a speculative residential property bubble in China fuelled by borrowing. Not least, bad loans and losses will change the attitude of global banks, choking off finance. Already in the UK many property funds trade at big discounts to asset values, highlighting investor caution. It has triggered vacant space and forced selling.
While there is some new demand, it is no longer for large single-occupier office blocks or for buildings that do not meet modern requirements for energy performance and hybrid working. Companies are re-evaluating their space needs, aiming for more flexible work environments.
Obsolescence is hitting values and it is not easy to convert buildings no longer fit for purpose. A two-tier market is developing in cities, where prime properties that offer good location and modern facilities combined with lower running costs are in demand but others built last century sit empty. Not all are suitable to be turned into residential use.
These challenges may also lie ahead for the housing market, with many homes unable to meet good energy performance standards against a background of high mortgage costs. Despite a supply squeeze of affordable new housing, average house prices have recently fallen in all UK regions.
Confidence remains weak, with changes in the rental market also cited as a factor in the uncertainty. New homes are needed, but addressing climate change and energy performance needs creativity in updating older properties. Currently, solutions seem limited. Office occupiers can move and leave their old energy-inefficient premises behind, possibly to be demolished, but at a national level that does not work for housing.
Retrofitting existing buildings to meet higher energy efficiency standards will need finance, but that may be a problem. Banks are rightly cautious about lending for energy performance improvement. While it might be part of a renovation to prevent loss of value in an older domestic property, justifying the investment to a lender can be difficult.
The climate emergency demands action, but setting energy performance standards on rental properties alone will only tackle a part of the housing market. There is some funding for homeowners via Home Energy Scotland, but with limited overall impact.
Scotland’s shopping centres are also grappling with the rise of e-commerce and changing consumer preferences. These spaces need to become mixed-use developments that incorporate residential, commercial, and recreational elements.
Many out-of-town centres now look very tired, unsuited to today’s lifestyles. In contrast with high street retail, these spaces are harder to repurpose. A number of initiatives are under way to revitalise city centre shopping in Scotland’s major cities but the process is slow and a broader, more holistic, vision may be needed.
The combination of a property bubble unwinding alongside a major change in work-life patterns means many buildings today are not what Scotland needs. There is much to be gained from getting this right. Building use and planning is driven by local authorities but Scotland has opportunity for a national conversation on the current challenges.
Not a planning consultation on specific developments, but a higher level discussion to look at how the change is being handled in other nations and what guidance can be given.
Developers and the private market are unlikely to have the vision and civic focus that we need now. Property transformations require significant investments, thoughtful urban planning, and collaboration between stakeholders.
Colin McLean is a director of SVM Asset Management Holdings
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereLast Updated:
Report this comment Cancel