Scottish Independence Referendum – Possible Effects on Commercial Property

As Scotland prepares to go to the polls on September 18, ex-president of the British Property Federation David Hunter has warned that a Yes vote could have a ‘drastic, negative impact’ on commercial property values in Scotland.

On the other hand, former chairman of the RICS Scotland Valuation Professional Group Andy Lythgoe takes the view that ‘improved long term prospects’ will be brought about by independence. This post will briefly summarise some the arguments advanced by supporters of each campaign.

‘Drastic, negative impact’

Markets do not like uncertainty and the property market is no exception. A Yes vote could lead to several years of currency negotiations, pension uncertainty and interest rate rises and some commentators are concerned that this will push prices downwards. The Financial Times reported last Tuesday (09 September) that a Scottish deal had recently fallen through after a big lender decided not to commit any more funds to Scotland until after the referendum had taken place.

As a response to the uncertainty, some buyers are now insisting on conditionality provisions in property contracts that will allow them to walk away or renegotiate terms in the event of a Yes vote.

Prices could be forced downwards further as a result of institutional investors selling out of an “overseas” Scotland owing to their mandates specifying that they can only invest within the UK. With few obvious replacement buyers for these assets, investment values will more than likely drop. David Hunter has suggested that the only reason that such a sell-off has not yet taken place is due to the optimism that independence will not happen.

‘Improved long term prospects’

Some supporters of independence submit that an independent Scottish government would be able to encourage business development and innovation by setting a policy framework tailored to Scotland’s needs. It is anticipated that in turn this will reinvigorate the private sector and bring with it a demand for commercial property.

In the public sector, areas such as defence, which Scotland currently contributes towards financially but does not benefit from in terms of jobs, will require a permanent presence in an independent Scotland’s real estate market.

Further, Andy Lythgoe believes that the uncertainty currently troubling investors predominantly based in the south-east of England could, in fact, ultimately benefit an independent Scotland by presenting opportunities for Scottish investors and those from overseas to get a foothold in the Scottish commercial property sector.

The reality?

As with many of the points debated in the run up to the referendum, the real impact that a Yes vote might have on the commercial property sector in Scotland is not clear and, indeed, may never become so depending on the outcome of the referendum. The latest opinion polls have suggested that the vote is too close to call. One thing that is certain, however, is that people all over the UK will be watching with interest as the results of the referendum are released in the early hours of 19 September.