As of 1 April 2024, local councils throughout Scotland, including Glasgow, Edinburgh, and Aberdeen, have changed their rules on empty property relief for non-domestic rates in an effort to promote the occupancy of empty properties.

Here, we summarise the impact of this policy shift on property owners and tenants and explore broader commercial considerations for the retail sector.

The new policy imposed on empty properties

The Scottish Government has recently delegated responsibility for rates relief to each local council. As a result, several councils in Scotland have opted to remove rate relief on listed buildings due to funding restrictions. Listed buildings have historically been exempt from business rates when vacant to help offset the high costs associated with maintaining and securing these properties. However, while each council has the autonomy to interpret and enforce this policy as they see fit, the majority have opted to reduce or eliminate relief on listed properties, resulting in some ratepayers being subject to full rates with effect from 1 April 2024. Renfrewshire Council is amongst those that have chosen to implement these measures in an attempt to bolster the economic use of the properties and prevent landlords from “letting these properties stand empty for years”. The revised policy will have a significant impact on property owners and tenants throughout Scotland, particularly those occupying listed buildings.

Implications of the policy on the retail sector

Shopping centre and high street vacancies continue to increase in Scotland. In Glasgow, where many retail shops are situated in listed buildings, retail vacancies are at their highest level in 18 months. The removal of empty property relief from rates on such properties is expected to significantly impact the retail sector. Some of the key implications of the new policy that are likely to emerge are summarised below.

• Increased financial pressure: Owners and tenants of vacant properties will face increased financial burdens due to the imposition rates on empty properties. This could be particularly challenging for retailers with extensive portfolios in Scotland, especially alongside increasing vacancy rates which could leave more retailers increasingly vulnerable.
• Occupancy incentive: The policy aims to encourage the use of vacant commercial spaces by imposing higher rates on unoccupied properties, encouraging property owners to become more proactive and actively seek tenants. This could potentially create more opportunities for retailers secure high street leases on better terms.
• Market dynamics: While the long-term market effects of the policy changes remain uncertain, it's anticipated that landlords may offer flexible leasing terms in order to maintain occupancy. On the other hand, the increase in available properties may lead to competitive pricing for property rentals.
• Impact on development: Developers may hesitate to start new speculative projects if there is a risk of facing high empty rates, potentially leading to further barrier to new properties being developed.
• Property conversion: To avoid empty rates, some property owners may consider converting their commercial properties to alternative uses, such as residential units, co-working spaces or mixed-use developments. This could pose challenges for retailers hoping to secure tenancies in key locations.

The decision to remove rates relief on empty buildings is expected to pose significant challenges for owners and occupiers of retail properties, adding strain to an already financially pressured sector. Retailers may be more cautious about operating in high street properties in Scotland due to the financial implications of this policy change, especially when compared to the rates position in England and Wales.

Key takeaways

While the new empty rates policy aims to reduce vacant commercial properties and drive economic activity, it seems likely to further burden the retail sector and listed property owners across Scotland. The concern for Scotland is that this could discourage retailers and developers from operating in our high streets and motivate them to seek alternatives due to the perceived risks associated with unoccupied properties.

If you require any help navigating the changes in policy and analysing whether the new policy changes impact you, please get in touch with our real estate team who would be delighted to help.

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