Real estate decision makers are again focusing on a possible second Scottish independence referendum. Independence-supporting parties increased their representation in the recent Scottish Parliament elections and continue to hold a majority of the seats.
However, the date of any referendum is far from certain, for three reasons:
• Most importantly, it is still far from obvious that a referendum would deliver the result that independence supporters want. Voter polls tipped in favour of independence during the pandemic, but have recently swung back to a roughly 50/50 position.
• The continued resistance of the UK Government to even holding a referendum could see the matter dragged (repeatedly) through the courts. While the SNP may hope that any court battle might serve to illustrate the UK Government's oppressive intransigence, this probably isn't enough in itself to convert sceptical voters.
• In any case, recovering from the pandemic is the immediate priority.
This suggests that it may be quite some time before the question formally comes back onto the table.
Arguably this level of uncertainty in Scottish politics has persisted ever since the Scottish Parliament was created in 1998. But there is little evidence that it has ever caused real estate investors and occupiers to avoid Scottish property.
In fact, even when a referendum is firmly announced, the evidence from the previous referendum in 2014 suggests that there is only any hesitation in the few months immediately before the vote. As Chart 1 shows, the market did not react at all when the referendum date was announced in March 2013, and remained stable up to Q2 2014. The ‘no’ referendum result was followed by a complete and instant recovery in both office lettings and investment within the remaining fortnight of Q3 2014 as ‘on hold’ deals were signed off. Scotland’s property market went on to perform better in 2014 overall than in either 2013 or 2015.
Chart 1: Scottish real estate investment (all sectors) and office take-up, 2013 to 2015, quarterly
Source: CBRE Research. Office take-up is the total of take-up in Edinburgh, Glasgow and Aberdeen.
Of course, this behaviour depended crucially on what the market thought the outcome of the vote would be. In 2014 the market (and the voters) were demonstrably unsure that Scottish independence was a good thing, hence the drop in activity. My CBRE colleagues in Scotland think the market still is unsure.
This seems likely to be because key economic questions about Scotland's future remain unresolved – or at least hotly contested. Furthermore, of course, Scots are now faced with the added complications of Brexit. If Scotland stays outside the EU then it has a harder border with the EU than in 2014; if Scotland rejoins the EU then it has a harder border with the UK, which for now easily remains Scotland’s largest trading partner.
The complexity of the issues, with no obvious route to a quick resolution, combined with inevitable post-election speculation, means that ‘background noise’ will feel elevated over the next few months. However, previous experience suggests that the property market will be unaffected by it for some years, if at all.