Real estate faces real challenges
◆ Megan Mcdonald discusses the pitfalls and opportunities that come with complex development projects
Last year, Shoosmiths in Edinburgh moved into its new office space in the £350m mixed-use Haymarket Square development. Two miles east, the striking multi-use St James’ Quarter has also opened. Both exemplify that complex innovative real estate developments demand a clear vision, thorough market research, a viable business model and a robust execution strategy.
Whetherit’sbuild-to-rent,student accommodation, a major housebuilding development or ambition store purpose existing inner-city buildings for leisure and business, the vital elements of design, technology, sustainability, planning, construction and financing under line there’ s no room for a one-size-fits-all approach.
From a real estate lawyer’s perspective, this evolving landscape of changes in urbanisation, demographic shifts, consumerpreferences and technological advancements–in cluding greater energy efficiency – present both challenges and opportunities.
A significant challenge is the limited availability and affordability of land, especially in urban areas. Landowners often have aspirations of valuations from a by gone age. potential solutions include reform of the land taxation system to incentivise efficient land use and discourage land banking. Equally, legislation could encourage an increased supply of public land for development through land assembly, compulsory purchase, or land pooling.
Significant too is the widespread recognition that Scotland’s current overstretched planning and regulatory framework is affecting the cost, time and risk profile of projects.
Projects must also take account of the Scottish Government’ s ambition to de carbonise the heat sector and achieve netzero greenhouse gas emissions by 2045. There are measures in place to encourage developers to adopt sustainable practices, including grants, loans, and tax breaks for implementing energy-efficient buildings and renewable energy systems.
Yet, still more can be done to increase the funding and scope of incentives for investors and customers. This includes exploring the forms of financing which can reduce upfront costs and risks of adopting the likes of innovative heating systems.
Scotland’s overstretched planning framework is affecting the cost, time and risk profile of projects
Finance is a key consideration and potential challenge for any real estate development. Fortunately, in Scotland we have a competitive, diverse finance and funding market, with sources and instruments including bank loans, equity, bonds, crowd funding, joint venture sand public-private partnerships. Lenders will look for developments which have a strong potential for profitability and a low risk of default, like multi-family and student accommodation, which can generate a steady stream of rental income, or a mixed-use residential, commercial and retail inner-city project that reduces the risk of vacancy and incorporates innovative energy efficiency features.
Clearly, to deliver an innovative real estate development to completion is an increasingly complex enterprise which demands synergy and expertise across different legal disciplines. Bringing these legal considerations under one roof makes sense, alleviating many of the pressures which arise on the journey to create attractive new developments throughout Scotland.