Changes to business rates for empty properties in Scotland, which come into force today, could lead to a slowdown in industrial developments and limit choice for businesses looking to expand north of the border, according to Knight Frank.

The independent real estate consultancy said that new legislation from the Scottish Government will now mean vacant industrial properties will lose their complete exemption from business rates and only qualify for 100 per cent relief during the first six months they are empty. Thereafter, they will be granted just 10 per cent relief on their business rates for vacant properties.

The changes will also be backdated so that any industrial properties which have already been sitting empty for six months, or longer, will immediately be liable for 90 per cent of their business rates from April 1.

On an empty 15,000 sq. ft. shed, for example, with a rateable value of £100,000, the owner will now be looking at an annual bill of £44,100 after six months, instead of £0 – with no regular income from the site.

Simon Capaldi, associate at Knight Frank, said: “The demand remains for quality industrial units and the theory behind the change in the rating system is to generate rental growth and boost development, but the pressure will be on for landlords to secure occupiers in a shorter time period.

“Landlords face a much higher outlay on their empty premises; they’ll have to consider how to mitigate that carefully. It’s likely that the industrial market will polarise, with the removal of poor quality stock and modern new-builds becoming much more sought after – rental levels could also increase due to limited supply.”

Knight Frank’s latest Logistics and Industrial Commentary (LOGIC), which gauges trends in industrial warehouses and sheds, found that there is already a significant undersupply of modern industrial units of over 50,000 sq. ft. in Scotland, with just two available in Glasgow at the end of 2015, totalling 511,574 sq. ft. of space.

Limited supply in Edinburgh saw headline rents of £7.50 per sq. ft. achieved at Bankhead Industrial Estate and Peffermill Industrial Estate, prices last seen prior to the downturn of 2007. The sub-5,000 sq. ft. market was the most active in the city, with the majority of demand coming from indigenous companies looking for accommodation.

Sarah Addis, senior surveyor for Knight Frank, added: “The outlook for Glasgow remains positive, a number of landlords have committed to delivering speculative developments over the next 12 months, demonstrated both at Bellshill and Hillington, where demand remains strong.

“However, the introduction of the new rating scheme may lead to more caution and a longer decision-making process for developers considering larger-scale units. The new system seems to further penalise landlords with older stock, by hindering their prospects as vital funding is pulled to cover rates bills.

“Many landlords are now being forced to consider the option of demolition, which could not only cost a significant amount, but have a detrimental impact on the landscape of older industrial estates and further reduce an already limited supply in Scotland. The full effect remains to be seen, but we would recommend that all landlords and developers seek strategic professional advice to consider the best approach over the coming months.”