Scotland’s rejection of independence from the rest of the UK has calmed the real estate market – for now.
Scotland’s rejection of independence from the rest of the UK has calmed the real estate market – for now.
Scotland's real estate market will benefit from certainty after a majority of the electorate voted 'No' in the referendum on independence from the rest of the UK held in September, according to JLL. 'The result will provide a welcome boost to Scotland’s property market. Uncertainty surrounding the possible outcome of the referendum has undoubtedly been a factor in the decision-making process for many potential occupiers and investors, although some will continue to hold back commitments until there is a clear indication of what that result means for Scotland and wider UK,' said Alasdair Humphery, lead director for JLL in Scotland. 'Following today’s result, I am optimistic we’ll see more confidence returning to the market and an increase in activity from international occupiers, some of whom had previously been reluctant to progress expansion plans.'
Now that Scotland has voted against independence, the focus will shift to promises made to the Scottish people by the UK government and the wider 'No' campaign to devolve more powers from London to the Scottish parliament in Edinburgh. The promised reforms, including near-fiscal autonomy for Scotland, have been dubbed 'devo max', which stands for maximum devolution. JLL's Humphery: 'The constitutional and fiscal changes that will occur if Scotland is granted “devo max” are at this early stage an unknown quantity. We will clearly be keeping a close eye on proposals for further devolution of powers, and what these might mean for our clients not only in Scotland but across the UK. However, the devil is in the detail, and much of this detail has yet to be worked out.'
BUSINESS AS USUAL?
One of the major weapons which the ‘No’ camp drew on during the referendum campaign was the threat by five major financial institutions – Royal Bank of Scotland (RBS), Lloyds, Tesco Bank as well as insurers Standard Life and Aegon – that they would consider relocating their licences or their operational bases from the Scottish capital Edinburgh to London in the event of a vote for independence. It would seem logical, therefore, that the rejection of independence has guaranteed the institutions will stay in Scotland. Taking the lead, RBS - which has been based in Scotland since 1727 - quickly reversed the threat, saying it was ‘business as usual’ for all its customers across the UK and RBS.
It won’t necessarily be business as usual, however, for all major financial institutions. Lloyds Banking Group is hedging its bets and has not withdrawn its threat to leave Scotland despite the referendum result. The bank’s official reaction to the ‘No’ vote was less than unequivocal: ‘The Group is proud of its strong Scottish heritage and remains committed to having a significant presence in Scotland. We remain fully focused on supporting households and businesses in Scotland as well as right across the rest of the UK.’ Various analysts have speculated that Lloyds will move to London regardless of the ‘No’ vote, mirroring the move by financial groups and top companies from Montréal despite the defeat for Quebec nationalists seeking to split from Canada in referendums held in 1980 and 1995.
Importantly, though, there is a difference between RBS and Lloyds and their Scottish presence. RBS has a Scottish heritage dating back over 300 years, with 11,500 staff in the country, including over 3,000 working at its corporate headquarters on its 40-heactare Gogarburn campus outside of Edinburgh. The campus was valued at £350 mln (€444 mln) when it was opened by Queen Elizabeth in 2012.
Lloyds is also registered in Scotland, thanks to its takeover during the crisis of the Bank of Scotland, the country’s oldest bank - founded by the pre-political union Scottish parliament in 1695. Lloyds holds its annual shareholder meetings in Edinburgh but is run for all intents and purposes from its offices in London. Lloyds had indicated it would leave its Bank of Scotland and Scottish Widows subsidiaries in Scotland in the event the group moved its official home to London.
But there are more to banks than buildings; assets count too. Lloyds, according to Credit Suisse analysts, has a bigger exposure to Scotland than RBS. About 3.7% of Lloyds’ assets are in Scotland, compared to 1.4% for RBS. The ‘No’ vote was a resounding victory for the pro-union, Better Together campaign but real estate investors looking to Scotland may yet find that ‘betting on the bank’ is still not a risk-free business.
Cormac Mac Ruairi
Editor Nordics, CEE & Russia