A MILLION square feet of factories and warehouses could be demolished across Scotland in response to tax changes outlined in the Scottish budget, industry experts are warning.

Property agency JLL believes the reforms to empty property relief – which were set out by deputy first minister John Swinney in the Scottish Government’s draft budget last month – will have damaging consequences for landlords, developers and occupiers, including manufacturers and the struggling oil and gas sector.

From 1 April 2016, the proposed changes mean that landlords of vacant industrial property – which currently qualifies for 100 per cent business rates relief – will see their rates bill soar from zero to 90 per cent after an initial three month rate-free period.

“The proposals will have a negative effect on commercial property development right across Scotland, as well as the economy,” warned Andrew McCracken, director of UK industrial & logistics at JLL in Scotland.

“The proposals will stifle much needed speculative development – which was only beginning to return from 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 outwith Scotland.”

Higher holding costs mean landlords may opt to demolish their units rather than spending money on refurbishing them, the firm added.

Manufacturing and production occupiers, particularly those in Scotland’s oil in gas sector, are likely to be hit hard. “Typically these businesses require large building and yard spaces and the flexibility of additional space due to the short term nature of contracts,” JLL said. “Under the new regime, the cost of under-used space will create a huge cost burden on company resources at a time when the oil and gas sector is already facing extremely challenging market conditions.”

JLL is urging the Scottish Government to reconsider the proposals – which have yet to go through parliament – before implementation in April.

The Scottish Property Federation (SPF), which represents the UK’s real estate industry, said the three-month rate free period was not long enough to get a vacant property let or refurbished.

“The market we’re talking about includes factories, logistics and distribution,” explained SPF director David Melhuish. “So maybe these are small engineeering firms that want to get going. These are aspects of the economy that have been showing some encouraging signs of growth – and this tax is just a deterent to the growth of these sectors.”

At the Federation of Small Businesses in Scotland, which represents 19,000 small and medium sized businesses, senior public affairs advisor Stuart Mackinnon said: “Our interest is in how landlords react to these changes. Our understanding of the deputy first minister’s intentions is that by reducing the amount of empty property relief, landlords would be encouraged to drop rents and invest to make their premises more attractive to potential tenants. If there is evidence suggesting that they’re not going to do that and are instead going to knock to property down, that’s of serious concern.”

A Scottish Government spokesman said that, faced with ‘challenging and damaging’ budget cuts imposed by the UK government, 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, and indeed a competitive advantage remains in Scotland for the majority of ratepayers,” the spokesman added.

“We take seriously the market conditions and prospects for industrial property occupation and development and engage regularly with business organisations. We will consider feedback from business on these proposals and confirm final decisions shortly.”