Rates rise
Published: 21 April, 2008
The Government's new legislation on Empty Property Rates will drive down commercial property values, will fail to incentivise development and reduce the availability of property in the marketplace, according to a new survey by commercial property consultant Lambert Smith Hampton.
It will also result in precisely the opposite effects to the objectives the Government is looking to address, warns the poll, which surveyed 100 developers, investors and occupiers of commercial property. The poll highlights industry fears that the changes to EPR relief could cripple regeneration, development and investment.
The British Retail Consortium is also concerned that the Chancellor's decision to increase property tax on empty commercial buildings will seriously hamper regeneration and do nothing to boost occupancy rates, undermining the Government's efforts to reverse inner city decline.
In a joint letter last spring to the then Chancellor Gordon Brown, the BRC and commercial occupiers' body CoreNet Global, urged him to abandon plans to dramatically scale back rate relief on empty shops. The letter warned that the change would have a string of unintended and damaging consequences for communities where businesses are already under severe cost pressure.
Now the BRC and CoreNet Global have joined forces with other trade bodies, including the British Property Federation, to tell ministers that the Government is ignoring the reality of the current economy and property market in their desperation to plug holes in the nation's finances.
The Government argues the reforms, which came into effect on April 1 2008, will bring empty shops, offices and factories back into profitable use.
But the BRC disagrees. Until April 1 no business rates were paid for the first three months that retail premises were empty. After that the owner paid half the normal rates bill.
Under the new rules there will still be no charge for the first three months they are empty, but, after that time, full rates must be paid even if a tenant has not been found.
In their joint letter, the trade bodies tell the Government that if it cannot prove its claims that the extra tax will increase property availability and reduce rents, it must reintroduce the 50 per cent relief or extend the period when no rates are due to better reflect the time taken to fill vacant property.
BRC director general, Stephen Robertson, said: "The Government must take us for April Fools. It is ignoring the mechanics of the property market because of a desperate need to plug holes in the budget at a time when the economic slowdown makes it more likely business premises will fall vacant. In the current economic climate the Government should be alleviating the tax burden on businesses, not making them less competitive.
"No one gains by keeping property empty. It's unoccupied because there isn't the demand for it at that time and place.
"Piling on taxes will not conjure up new tenants or drive down rents but will weaken the prospects for local regeneration."
Liz Peace, chief executive of the BPF, added: "This is a disastrous move that could have consequences far beyond the lifespan of this Government. Despite all the talk of open Government, this ill-conceived move has been brought in without fair and proper consultation. There is a clear lack of joined up thinking between the Treasury and Communities departments, and ministers must understand the financial risks that private firms take to regenerate our towns and cities.
"Cutting rate relief will be a major blow for those striving to deliver sustainable communities. It's in no one's interests to leave property empty, but the realities of the current market mean that new developments will see a certain percentage of vacancies and it's unfair that those very investors prepared to deliver Government policies should be penalized and ultimately priced out of regenerating our country."
LSH's survey also demonstrates the widespread belief that the move is little more than a £1bn tax grab by the Chancellor, expected to cause significant damage at a time when the sector is under intense pressure.
The LSH Empty Rates Survey Report reveals that more than 80 per cent of respondents believe that the EPR changes will have a detrimental effect on town centre regeneration; 70 per cent expect capital values to drop; while 53 per cent believe rents will fall - good for occupiers in the short term but resulting in longer term rental rises due to the emergence of a two-tier market thanks to the EPR changes. Contrary to the Government's belief, 80 per cent of respondents disagreed that the legislation will help to bring more properties to the market. In addition, more than 50 per cent of respondents will review their property portfolios, either by slowing their development programme, selling properties or demolishing buildings that are unattractive to tenants and buyers; and it reveals the industrial sector of the commercial property market will be hardest hit.
Richard Wackett, rating director at LSH, said: "Property is a cyclical industry - and there can be no doubt we are in a downturn now. The Empty Property Rates reforms represent bad news for a commercial property market already suffering from the nine-month long credit squeeze. It's ill-conceived and ill-timed.
"We are also concerned about the impacts on building stock. There's a very real risk that this legislation will result in more buildings being left unfinished so that their owners can avoid paying the tax and more completely viable buildings being demolished simply to avoid void periods. People will do this to help their businesses to be more competitive - and it's hard to blame them for that. "
And Wackett concluded: "Legislation is supposed to provide incentives for effective development and business growth, not poorly planned obstacles. There has to be a better way. No other country that I am aware of strangles its property industry with blatant tax grabs like this."
