Developing the north of Scotland: What are the opportunities, and how do we deliver them?

Last month we welcomed guests with an interest in development opportunities across the Highlands and Islands to a Commercial Real Estate Breakfast Briefing at the Kingsmills Hotel in Inverness.

Stuart Black, Chief Executive of Highlands and Islands Enterprise (HIE), shared valuable insights into development opportunities across the region, highlighting the potential cross-sector benefits. Malcolm MacLeod, Assistant Chief Executive (Place) for The Highland Council, discussed the Council’s efforts to support investment, address barriers to development, and the ongoing work to overcome these challenges. Rory Kellett, Director at Threesixty Architecture, presented on how placemaking and masterplanning are crucial for bringing development opportunities to life, using Inverness Campus as a successful example. John Meehan, a Partner in Harper Macleod’s Commercial Real Estate team, provided insights into the set-up and use of joint ventures to support the delivery of these opportunities, and key legal issues to consider in site assembly and development work.

Biggest economic opportunity in a generation

The extent of the opportunities across the Highlands and Islands is unprecedented.

A key focus is on the Highlands and Islands becoming a net zero region – aiming to be greener, fairer and more resilient. One organisation driving this agenda is HIE, as it builds and promotes the case for sustained and targeted investment to achieve net zero and capitalise on the region’s natural capital. A study, commissioned by HIE for the Highlands and Islands Regional Economic Partnership, is due for publication shortly and will demonstrate the scale of the opportunity. In the next 10-15 years (2025 – 2040), the regional potential includes hundreds of individual projects, with a combined investment value of up to £100bn, driving significant GVA impact and creating thousands of jobs.

Offshore wind will account for a substantial share of the total investment value, while supporting infrastructure, pumped hydro storage and onshore wind are also significant. The research indicates that the Highlands and Islands will become an energy powerhouse, not just for Scotland, but for the entire UK.

The significant development opportunities are forecast to come from other sectors too, including green hydrogen, marine energy, natural capital and space. This creates a very positive investment outlook for the north of Scotland.

However, the region faces challenges in realising these opportunities. Barriers to investment include the well-publicised skills shortages across many sectors, compounded by a declining working age population. Delays in planning permission and grid connections applications also contribute to delays in deploying investment. Additionally, there is a shortage of housing, and infrastructure needs to be developed, especially upgrades to the road network that have been deferred.

Despite these challenges, the region is seeing success. Development projects are spread across the Highlands and Islands, from Shetland in the north to Argyll in the south, with significant opportunities, particularly in floating wind. Inward investment, such as the £350m investment by Sumitomo Electric for a new high voltage cable manufacturing facility at the Port of Nigg in the Cromarty Firth, is transformational and an early demonstration of the value of benefits associated with the Inverness and Cromarty Firth Green Freeport.

We need an ‘open for business’ reputation

Malcolm MacLeod emphasised that The Highland Council welcomes development and is working collaboratively to remove barriers and speed up the statutory process. The Council is also working to secure legacy benefits for the whole region which will continue long after construction is completed. There are examples of successfully building legacy benefits into developments. For example, SSEN’s commitment to provide more than 1,000 homes following the completion of the transmission upgrade across the north of Scotland, including around 400 homes in the Highlands.

How can we facilitate development in the north? We must be bold in finding solutions to challenges, such as the shortage of housing. This includes delivering a mix of social housing, properties for mid-market rent, and private housing, while avoiding second homes. Given the projected doubling of housing demand in the next 10 years, we also need to upsize and accelerate delivery mechanisms, encourage more private-public sector partnerships and facilitate proper masterplanning.

A significant concern is the projected decline in the working age population across the region. With this anticipated demand, the delivery of housing and care to accommodate peoples’ needs is essential. The current ‘call for sites’ process and the proposed use of Masterplan Consent Areas provide an opportunity to identify the land needed to address the housing challenge, with the council aiming to double the current rate of housebuilding.

Whilst supporting residents and organisations in the north is crucial, it’s also important to recognise the economic benefits brought by visitors. Tourism remains an important industry for the whole region, and we must continue to develop infrastructure for both residents and tourists. While many renewable energy developments are located on the east coast, opportunities also exist on the west coast. HIE is investing in traditional industries on the west coast, including tourism and food & drink, to support regional development, economic growth and communities.

The Highlands and Islands must maintain an ‘open for business’ reputation. The Highland Council recently agreed a 7% rise in Council Tax, with a significant 2% earmarked for capital investment through the Highland Investment Plan. This funding mechanism will enable the council to borrow significant capital to invest in a long-term infrastructure investment programme for the Highland area, including schools and roads.

Inverness Campus: A model for development in the north

‘More than just a business location, it’s a whole collaborative community’ is a strapline for Inverness Campus. The overall masterplan brings 83,000 sq. m. of development to the largest city and cultural capital of the Scottish Highlands. Developed by HIE, the 215-acre site has already built a thriving community of technology and life sciences organisations.

The Inverness Campus phase two masterplan is currently undergoing public consultation. The masterplan is designed to attract innovative businesses, expand green spaces, and support not only the life sciences and tech sectors, but also the rapidly expanding renewables, space, and manufacturing sectors, and knowledge industries. Phase two will leverage Green Freeport incentives, as a substantial part of the land is located within the Inverness and Cromarty Firth Green Freeport.

Celebrating its 10th anniversary in 2025, the Inverness Campus has, from an initial investment of £25m, attracted more than £180m of further development. A vibrant community has been created, delivering a collaborative environment supporting circa 1,200 jobs across the public and private sectors.

This success is set to continue as phase two will support wider business and commercial activity compared to phase one. The phase two masterplan proposes 70,000 sq. m. of Commercial (Class 4) space, 8,000 sq. m. of Hotel (Class 7) use, 1,500 sq. m. of Ancillary (Class 1/3/10) use and 3,580 sq. m. of Sui Generis use. It will also drive further economic growth and innovation for the region and create more jobs. An Economic Impact Assessment forecasts that, by 2050, phase two will have generated £196.1m in economic growth and created up to 2,550 jobs (FTEs). The legacy of this development will undoubtedly be transformational for Inverness and the wider region.

Collaboration is a driver of development

A common thread throughout the discussions on development in the north is collaboration. To bring the significant pipeline of planned developments to life, a wide range of organisations and providers of goods and services from across the Highlands and Islands and beyond will be involved.

For construction and real estate development projects, tier 1 contractors, the supply chain, professional services, local businesses and others will be involved. Whilst each business will deliver their work, products or services relying solely or largely upon their own skills and resources, there are often opportunities for two or more of these businesses to work together in a joint venture (JV), where companies can share knowledge, assets and resources while reducing risk and delivery time. This is particularly important for the development of real estate, where the overall objective is to deliver the project safely, on schedule and on budget.

A joint venture can be set up on the basis that each business stays separate and signs a joint venture contract setting out the respective commitments and entitlements of each party or, alternatively, parties may form a new joint venture company.

Deciding whether to enter into a joint venture and whether it should be set up contractually or as a new venture company, requires each party to consider what outcomes they are looking for, as well as what they are willing to – and not willing to – contribute to the collaborative agreement. There needs to be discussion around various elements including parties’ respective commitments and liabilities, the inclusion or separation of assets, profit sharing, and whether a contractual JV or JV company is the best route. Once formed, the JV needs to ensure that due diligence is completed and land acquisition contracts, building contracts and appointments all dovetail to ensure the venture remains viable and under the control of the JV. Harper Macleod’s role is to provide advice and guidance throughout this process, ensuring that well-informed decisions can be made.

At Harper Macleod, our Commercial Real Estate team in the north of Scotland, led by Ross Thomson and John Meehan, has worked on some of the most significant deals in the region across the housing, education, healthcare, life sciences, marine economy and energy sectors, amongst others, acting for developers, landowners and funders, since opening our Inverness office in 2004.

Our cross-disciplinary team is here to pull developments together. Covering every facet of development including site acquisition and assembly, planning, project finance, overage arrangements, development agreements, delivery – and dispute resolution when needed – Harper Macleod supports development across the north of Scotland. Together with organisations across the public and private sectors, we look forward to continuing to help our clients develop the north of Scotland.