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As Edinburgh moves up Europe real estate list...

Ministers urged not to regard property wealth as ‘soft’ tax target

Melanie LeechProperty leaders have urged government not to regard commercial real estate as a “soft target” for tax rises and acknowledge the contribution it makes to the economy.

New data reveals that it represents more than a fifth (20.6%) of total net wealth in the UK, equal to £1,662 billion.

The Toscafund report commissioned by the British Property Federation (BPF), also shows that CRE contributed £94.2bn (about 5.4%) to the UK’s GDP in 2014 and that construction work between 2002 and 2014 has on average employed 2.1 million people (6.8% of the UK’s labour force).

The authors say the sector encompasses everything from transport and infrastructure, to universities and private rented housing, and highlight the important role it plays in creating sustainable communities and supporting every type of business activity.

Melanie Leech (pictured), chief executive of the BPF, said: “Many people associate commercial property with offices or shops but as we can see in this report, it is so much more than that. It is your doctor’s surgery, your child’s university accommodation, the train station you go to every morning.

“Housing is a key priority for Government, and rightly so given the acute challenges that this sector currently faces, but to create sustainable communities, there must be a balance of both commercial and residential property.

Abstract Glasgow office

“Given the substantial contribution CRE makes to the economy, to jobs, to regenerating our towns and cities, as well as the security it provides us through pension investment, it is in any Government’s interest to promote investment in this sector through appropriate regulation, support and fair taxation.”

Dr Savvas Savouri, chief economist at Toscafund Asset Management and author of the report, commented: “It would be no exaggeration to say that the fortunes of the UK economy turn on a well-functioning CRE market.

“To assume that CRE can be considered a soft-tax target because it is immobile, is to ignore the fact vacant premises not only generate no economic returns, they actually have negative consequences for the communities around them.

“The call for more equitable taxation of property simply asks that burden should be proportionate to ability to pay; a timely income based approach replacing an extremely slow to adjust and anachronistic value based one.”

Chris Taylor, chief executive officer, Hermes Real Estate and president of the BPF, said: “It is important for Government to understand that our industry acts as a pivotal conduit for sustainable growth, implementing regeneration and contributing towards a more balanced and productive economy.”

>> Edinburgh has risen up the European rankings of investment locations, according to the latest Emerging Trends in Real Estate Europe (ETRE) 2015, published jointly by the Urban Land Institute (ULI) and PwC.

The capital moved up one place to 18th of 27 European cities ‐ a turnaround from 2015 when the city dropped two places in the annual index, mainly due to political uncertainty in the lead up to and immediately following the September Referendum. Dublin (3rd) and Birmingham (6th) are the only cities outside mainland Europe to feature in the top 10.

Based on respondents’ expectations for market performance in 2015, ETRE notes that a strong uplift in real estate investment in Edinburgh during 2016 is anticipated, placing it ahead of similar activity in competitor cities of Barcelona, Rome and Frankfurt.

Much of this is expected to come via commercial and retail investment, with hotel and tourist trades also doing well. One example is the 40,000 sq ft, St James’ mixed-use scheme, with developers seeking funding in the region of £850m.

However, as delegates attending the report’s launch at PwC’s Edinburgh office on Tuesday heard, challenges still abound: some of those surveyed believe the devolution question hasn’t totally disappeared, which could give rise to concern around longer-term, large scale investments.

Susannah SimpsonSusannah Simpson (right), tax partner at PwC in Scotland, said: “It’s clear that for both domestic and international investors, real estate in well-run major cities, displaying good local government remains a fertile hunting ground ‐ and this is great news for Edinburgh, as well as other Scottish cities.

“Over the last 12 months, demand for Grade A office accommodation across both Edinburgh and Glasgow city centres has continued to enjoy a renaissance. As prime assets are snapped up, we expect to increasingly see a ripple effect towards the peripheries, for example, in West Edinburgh which now benefits from enhanced transport connections following the launch of the tram network and, in due course, when the second Forth Crossing comes on line.

“The office market in Aberdeen has its own challenges to bear, as low oil prices now enter a second year with no sign of let up. It continues to be heavily influenced by the woes of the oil and gas industry as it strives to successfully navigate this lower for longer climate.

Dundee waterfront V&A

“However, new centres like Dundee (above) stand to benefit from a wall of money looking for a home in commercial property investment and, attracted by the entrepreneurialism and growth expectations, from the new creative industries and digital and life science sectors.

“Overall, investors and developers appear bullish about prospects for 2016, as a result of a combination of low interest rates in the UK, a competitive offering with the European marketplace and the availability of capital. Market uncertainties caused by ongoing debates over devolution/independence and changes in tax law which penalise investors in the buy-to-let market may dampen that bull market.

“However, taking advantage of the current wall of capital whilst continuing to focus on underlying market fundamentals, active asset management and operational skills should continue to reap dividends.”

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