LAND & DEVELOPMENT
THE TWENTIES, A DECADE OF RENEWAL AND THE CURSE OF EMPTY BUSINESS RATES
It is fair to say that the year 2020, as far as land development and housebuilding was concerned, can best be described as subdued. Covid-19 and the low oil price conspired to make 2020 a very difficult year within which to make land investment decisions. And as often happens in such economic conditions, the easy thing to do is not make any decisions on capital expenditure. The outcome being that the market usually freezes or falls.
With regard to land, it could be argued that the residential market has gone into hibernation. Traditionally land owners (usually farmers) are willing and able to wait for the market to recover before they sell.
There have, however, been transactions involving house builders at Countesswells Village (Barratt acquisition of a 425 unit site); Rowett at Bucksburn (again Barratt buying); CALA acquiring land at Persley, Bridge of Don.
Most of these sales are subject to confidentiality clauses but we believe pricing was at similar levels to 2019, and in the case of the Countesswells deal, there would have been a significant quantum discount.
In the case of “raw” office and industrial land, we have probably been in hibernation for four years now and there have been few, if any, pure land sales. By 'raw', we mean land that has not previously been built on and is serviced and ready to build on. Whilst there is little evidence of this type of transaction, the market sentiment is that sellers are looking for north of £250,000 per acre, with buyers willing to buy at around £200,000 per acre. The only transaction that gives an insight as to what the market is doing is the sale of approx 20 acres of business land at The Core, where it is believed that the buyer paid less that £100,000 per acre for fully serviced land. The most active Land and Development sector in 2020 has been driven mainly by the punitive empty business rates regime. A double whammy of limited market demand for commercial business space and the empty rates burden has meant that what were once “assets” are turning into liabilities. The Totem for what was going to happen was forged in 2019 with the sale of Silverburn House, Bridge of Don. This was a property that had been bought for £23m and was sold for £1m only 7 years later. In 2020 we have seen a raft of distressed sales of once valuable office or hotel buildings at bargain basement prices.
- The former Wood Group site at Dyce sold for £600,000 to Clowes Developments – now partly demolished and part re-sold, remaining in business use.
- Kirkhill Business Park on Dyce Drive, Dyce sold to Knight Property Group for less than £1m - perfectly functional pavilion offices demolished and being replaced by industrial.
- Atholl House on Guild Street sold to Cater Homes for £200,000 – plans to convert and extend for PRS use.
- The Treetops Hotel sold for over £4.5m – this site destined to its most valuable use which is residential.
In all of the above cases, the key determinants were limited market demand and crippling empty rates bills. It is hard to analyse these deals to calculate the price per acre paid, but my view is that the first three of these purchases have probably cost the purchaser between £140,000 - £220,000 per acre after you add back the demolition costs. One thing for sure is that demolition contractors are making hay even when the sun isn’t shining!
When we are released from Covid-19 restrictions, we expect demand on all fronts to increase, however we do believe that will take a couple of years to consolidate. We cannot see any increase in business land values in the next two years but would hope that there are at least a handful of sales to occupiers or developers. From discussions with house builders and our peers in the residential land market, we believe that land values will remain much as they have been for the last three years but that “premium” family home sites will increase in value.
We sincerely hope that someone in the position of power makes sense of the current Business Rates system, adapting it for the times we live in. It simply is not fair as it exists and leads to behaviour that is wasting perfectly good buildings and is without doubt environmentally unsustainable. Finally on a Scotland-wide view, we can only see the emerging PRS (Private Rental Sector), BTR ( Build to Rent) and affordable housing sectors growing and predict that we will see massive investment in this arena over the next five years.