Industry experts are warning that a million sq ft of factory and warehouse space in Scotland could be demolished in response to tax changes outlined in December’s draft Scottish budget.

Property agency JLL says that the reforms to empty-property relief will have “damaging consequences” for landlords, developers and occupiers, including manufacturing companies plus the oil and gas sector.

From 1 April, the proposed changes mean that landlords of vacant industrial property (which currently qualifies for 100% business-rate relief) will see their rates bill rise from zero to 90% of the full business rate after three months.

Andrew McCracken, director of UK industrial & logistics at JLL (www.jll.co.uk) in Scotland, said: “These proposals will have a negative effect on commercial-property development right across Scotland. They will stifle much-needed speculative development, which was just beginning to return after the recession, and will discourage the refurbishment of secondary industrial stock.

"The lack of availability will inevitably drive rental levels upwards and could lead to potential occupiers considering options and alternative locations outside Scotland.”

Higher holding costs mean that landlords may opt to demolish their units rather than spending money refurbishing them. Mr McCracken added: “Manufacturers and other production companies — particularly those in Scotland’s oil and gas sector — are likely to be hit hard. Typically, these businesses require large buildings and yard spaces plus the flexibility of additional space due to the short-term nature of contracts.

"Under the new rules, under-used space will create a huge cost burden at a time when the oil and gas sector is already facing extremely challenging market conditions. JLL is urging the Scottish Executive government to reconsider the proposals, which have yet to go through Parliament.”

A Scottish Executive government spokesman said that, faced with “challenging and damaging budget cuts imposed by Westminster”, ministers concluded it was no longer possible to maintain full empty-property relief in its current form.

“The standard rates poundage will continue to match the rate in England, and the small-business bonus scheme, which allows full or partial rate relief to eligible small businesses, is unchanged. We take seriously the market conditions and prospects for industrial-property occupation and development, and we engage regularly with
business organisations. We will consider feedback from business on these proposals.”

The Scottish Property Federation said that the three-month rate-free period is not sufficient to get a vacant property let or refurbished.

Director David Melhuish said: “The market we’re talking about includes factories, logistics and distribution, so there could be small engineering firms that want to get going, but this tax is just a deterrent to the growth of these sectors.”