SPECIAL REPORT | 13WEDNESDAY 21 OCTOBER 2009 THE SCOTSMAN
the upside should exchange rates
moveinitsfavour.Thismeansthatthe
SME can both cap off its worst case
liability, so it has certainty and has
removedadegreeofriskfromitseuro
transaction, and it has not cut itself
off from profiting slightly should the
pound strengthen against the euro,
insteadoffallingagainsttheeuro.
Wilsonsays:"Ifthecompanyisbuy-
ing in euros, we can guarantee, say,
1.08 euros to the pound or we can
protect the business against any
movement below 1.05 euros to the
pound and give the business 50 per
cent of any improvement on that
goingforward."ThepointforSMEsto
bear in mind, Wilson says, is that it is
extremelysimpletotakemeasuresto
eliminateexchangeraterisk.
Similarly, he says, there are some
SMEs that are very exposed to infla-
tion. For example, an SME that is a
heavy user of diesel fuel will know
that, when inflation rises, fuel costs
tend to rise sharply as well. If fuel is
what concerns them, the bank has a
productthatwillletthemhedgetheir
fuelprices.Thesameistrueofinterest
rate movements. If you are a big
borrower and are thus exposed to
variable rate interest movements,
thereareproductsthatwillhedgein-
terest rate movements. The key thing
is for companies to talk to their bank
abouttherangeofproductsonoffer.
People buying in
China are finding
goods are
getting more
expensive Picture:
AFP/Getty Images
"There can
be severe
penalties for
just letting
theexchange
rate fall
where it
pleases"
MARTIN HANNAN
INVESTMENT in Scottish real estate
in the widest sense of the term has
taken a hammering since the credit
crunch. There are signs of recovery,
but investment in real estate devel-
opment in particular remains the
"leastattractive"optionformanyin-
vestorsatthemoment.
That's the verdict of Alasdair
Humphery, managing director of
Jones Lang LaSalle Scotland, who
nevertheless points out that invest-
ment in property in general has
picked up in the second and third
quartersof2009.
Investors from the Continent tak-
ing advantage of the weak pound
havebeenabletomoveintoScotland
and gain a discount of up to 50 to 60
percentonpricesofafewyearsago.
Humphery cites purchases in
Edinburgh, particularly by German
money,asevidenceofaresurgencein
the Scottish market. The sale of Her-
miston Gait Retail Park to Scottish
Widows Investment Partnership for
�66millionisthebiggestdealhehas
noted for some time, and it is a good
sign for the future. Humphery says:
"For Hermiston Gait there were 15
bids, and one person got it, which
meansthereare14biddersoutthere
witharound�60meachtoinvest."
Real estate development from
scratch is the main problem area
with banks not keen to fund land
acquisitionsanddevelopment.
Humphery says: "The amount of
debt for lending at the present time
is focused on a number of areas but
the least attractive area, where there
has been virtually no activity, has
been development finance, either in
simply buying land or buying land
andfinancingaprojectonit.
"Residential or commercial, the
banks are just not doing it. The
government has told the banks to
put the money into the mortgage
market, though there is no-one in
the market providing 100 per cent
mortgagesanymore.
"Theriskforbankslendingonthat
kind of residential property is not
huge, but the risk for them lending
onspeculativedevelopmentisgreat,
sowearenotseeingalotofit."
Thereissomelightattheendofthe
tunnel,saysHumphery:"Residential
developers are starting to look at
their land banks again. Their value
has been dramatically reduced but
there are speculators out there and
in any market people start to form
views about when and where the
valueistobehad.
"You can imagine the discussions
that are going on, but it is at the
smaller end of the spectrum, not
hugetractsoflandbutmoremodest
intermsofsize."
It seems there are land sales going
through and housebuilders are re-
gearing themselves for a more nor-
maloperation.Itwillsurelybealong
time, however, before another real
estatebonanzaoccurs.
BOB MCGILL
THE commercial property sector in
Scotland took a nosedive following
thecreditcrunch,butwithbanksre-
luctanttolendonspeculativeinvest-
ments and developments, experts
are reporting that the property in-
vestment sector is picking up al-
though the development of sites
fromscratchisstillmoribund.
Iain Doran, head of commercial
property in Scotland at Dundas &
Wilson,admitsthesummerwas"the
slowest time I have ever known", but
feelsthemarketmaybepickingup.
"I am reminded of the school
dance. In our day we all crammed
intothegymandtheboyswerelined
up against one wall with the girls
lined up against the other side and
everyone just stood there for ages
without any approaches being
made.Afteranhourorsoabraveboy
would move in to the centre of the
floor and see if he could entice some
poor lassie to have a dance. Assum-
ing he wasn't spurned, this in turn
would encourage other brave souls
togetupandaskforadance.
"There came a critical point. If
enough people got up to dance by
the time the first record finished
then everyone would get up and
things would get going. But if by the
time that first record finished there
were only a few people on the dance
floor then everyone would take
frightandscurrybacktotheirsides.
"That is exactly where the invest-
ment market is at this moment. We
have passed the point where every-
oneisstandingwiththeirbacksfirm-
ly against the walls, and the braver
souls have begun to move and do
deals in the market, and this is cur-
rently encouraging other people to
getupanddanceaswell.
"I wouldn't say we are seeing a
floodofdeals,butafteralongperiod
of inactivity when people were just
too scared to dip their toes in the
market waters at all, some people
havestarteddoingsoandwearenow
seeing quite a lot happening on the
investmentside."
TheCapellabuildingonGlasgow's
Atlantic Quay and 191 West George
Street,inGlasgow,havebothattract-
ed interest, says Doran. "The thing
whichIamnotclearaboutregarding
this sudden burst of activity is
whether there will still be sufficient
people on the floor and dancing
when the music stops, but I am
cautiously optimistic about the
investment market." By contrast, the
development market is "just about
dead", according to Doran, who
adds: "There are some vague stir-
ringswherepeoplearebeginningto
getagentsandsurveyorsintolookat
properties.Itisearlydays,however."
Cameron Stott, a director at Jones
Lang LaSalle's Edinburgh office,
echoesDoran'scommentsaboutthe
problemsinthedevelopmentsector,
and points out that banks are being
"verycautious"aboutlendingwhich
is restricting development. He says:
"The banks, especially HBOS, are ex-
posed to commercial property and
theyarereluctanttohaveanyfurther
exposure, but other banks and insti-
tutions are beginning to see the op-
portunities.
"Itmaytaketwoorthreeyears,but
in time there will be more players
coming into the market to fund
property deals and institutions will
again be prepared to fund specula-
tivedevelopment."
In the meantime, office develop-
ment is dead, at least in the capital.
Stott says: "There will be no more of-
ficedevelopmentinEdinburghbythe
endofthisyear,withnonewproduct
in2010or2011.Thereareseveralrea-
sons for that such as concerns about
over-supplyandlackofoccupational
demandandofcoursefundingissues.
Letting activity is down and the
number of enquiries from potential
occupiershasdropped.Occupiersare
staying in their existing premises
when leases end and getting good
dealsfromlandlordstostay."
Thepropertymarketgoesinpeaks
and troughs, says Stott, and he pre-
dicts that office development in
Edinburgh might start again in
2012. In the meantime, robust busi-
nesses could cash in. He explains: "If
your business is strong and hasn't
beenbadlyaffectedandyouareable
to move or commit to take space in
thenext12to18monthsyouwillget
some fantastic deals, the best for
morethanadecade."
So it's an ill wind, as they say, and
even in commercial property the
newsisnotallbad,atleastforsome.
Hermiston Gait
Retail Park sold
for �66m
Investment in Scotland is still the real deal
Who'll make the first move?
The commercial
property market
needs some
John Travoltas
to revive it,
according to
Iain Doran of
Dundas & Wilson

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