Complex development projects bring challenges and opportunities - Megan McDonald

Whether it’s build-to-rent, student accommodation, a major housebuilding development or ambitions to repurpose existing inner-city buildings for leisure and business (like The Garment Factory, where Shoosmiths Glasgow office is located), the vital elements of design, technology, sustainability, planning, construction and financing underline 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, consumer preferences and technological advancements – including greater energy efficiency – present both challenges and opportunities.

In Scotland a significant challenge is the limited availability and affordability of land, especially in urban areas. Landowners often have aspirations of valuations from a bygone age which, taken with increased construction costs, are no longer attainable.

Potential solutions to ease this issue 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. This is a thorny issue, but positive steps could include simplifying and streamlining the planning system, including improving collaboration between developers and planners, providing more flexibility to reflect innovative approaches to development (and the associated risk), and changing market conditions. An increase in the capacity of planning teams to cope with the complexity and diversity of development projects would also seem to be a minimum requirement.

Projects must also take account of the Scottish Government’s ambition to decarbonise the heat sector and achieve net-zero 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.

Unsurprisingly, 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, crowdfunding, joint ventures and public-private partnerships.

However, the finance and funding market is volatile and cyclical and just like consumer and business confidence, might be affected by the likes of macroeconomic and political conditions and perceptions of the market demand for a particular type of build.

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.

Megan McDonald is a Principal Associate, Shoosmiths