‘Scottish premium’ hits development projects

Looking at the figures available and from conversations with my contacts across the sector, including architects and contractors, estimates are that development tends to be around 20 per cent more expensive north of the Border than in many English regional cities.

According to the Building Cost Information Service (BCIS) and regional benchmarks, standard residential and commercial construction costs differ significantly across the UK. In the Central Belt of Scotland costs can range from £2,000sq m upwards, compared to £1,500sq m upwards in the likes of Manchester and Birmingham.

There seems to be no sign of things becoming less expensive. BCIS said in May that Scottish contractors reported rising cost pressures. Construction input costs in Scotland increased by an average of 5 per cent in the year to the second quarter of 2026, according to the BCIS Scottish Contractors Panel. Panel commentary suggests that the conflict in the Middle East is contributing to cost pressures across several construction trades and product groups. Fuel-dependent activities, such as groundworks, and trades dependant on imported goods were also hit by availability constraints and higher transport costs.

The industry and related sectors need to focus on working together to try to address such issues as a lack of competition among contractors, labour shortages and supply chain problems.

There are several factors that are contributing to the existence of this "Scottish premium" on developments.

These include the substantial impact that Covid-19 had on office occupancy, which can still be seen today. The pandemic changed the occupational market and impacted demand. In turn, this has had a detrimental effect on office development, and we can see there is still less appetite for speculative projects.

At around the same time as the peak of the pandemic, proposed rent controls in Scotland had a major impact on the development of Build To Rent (BTR) stock. For a period, Purpose-Built Student Accommodation (PBSA) activity continued apace. However, the suggestion that PBSA might also be influenced by the rent controls impacted this market too. Although the rent control position has since been largely clarified, the damage had been done to the contractor market, jobs and supply chains.

Allied to all of this is the uncertain economic and political background. The economy has been volatile in recent years. Interest rates have risen which makes debt more expensive and there is less appetite for risk. As a result, financing development has become more expensive and difficult than it once was.

At a global level, the exposure of central banks and financial institutions to artificial intelligence (AI) means that investors with money to spend are seeking less risky options and this is also slowing down development activity.

It's not just commercial projects that are being hampered. Housebuilding is being held back meaning it's difficult to make building at scale viable.

Anecdotal evidence suggests most contractors will not enter competitive tendering processes now, preferring to name their price at the outset. Fixed price contracts are also rare as contractors are increasingly reluctant to take on the risk of potentially spiralling costs. Previously market forces would have required them to shoulder such risks.

Rather than accept the status quo, improvements can be made if we all come together and work out the best way forward. Scotland is still an attractive place for developers, but we can make it even better if somehow the industry and those involved in the supply chain can find a way of tackling some of the cost challenges in the market.

Brian Hutcheson, Real Estate partner, Dentons law firm​