Retailers across London could see their business rates bills increase by anything between 25% and 435% as a result of the Business Rates Revaluation set to come into effect on 1 April 2017, new analysis from Savills has revealed.
By estimating the rental movement from 1 April 2008 to 1 April 2015 (the dates used for the 2010 and 2017 rates revaluations) on the capital’s key retail streets, Savills has calculated the notional increase in rates payable for units, both with and without the application of transitional relief to cap increases. According to this analysis, Mayfair is set to see the highest proportional rates increases: Dover Street rates could rise by 435% if there is no transitional relief applied (50% with relief), Conduit Street by 195% (33% with relief) and Mount Street by 180% (32% with relief).
Click here to see London Prime Retail Business Rates – Analysis by Savills rating team
The revaluation of business rates is taking place to bring them in line with rental values of commercial property, which have grown substantially since the last valuation cycle in 2010. Ratepayers will be able to find out what their new rateable values will be when the Valuation Office Agency publishes the draft 2017 rating list on 30 September 2016.
David Parker, head of rating at Savills, comments: “Although any rise in business rates is very likely to be phased in incrementally, the mechanics and timing of the phasing are yet to be formally announced, and hence we don’t know what the cap on any increase will actually be. This leaves many retailers in limbo as to how much exactly they can expect to pay. The topline, however, is that in most locations in Central London rates bills are set to soar, with phasing cushioning the initial impact, but not for long.“
London‘s West End, including Oxford Street, New Bond Street and roads around Covent Garden, are also set to see a substantial rise in rates, reflecting the fact that rental values in these locations increased by up to 20% year-on-year between 2008 and 2015. However, future rental forecasts put likely annual rises at approximately 5% in prime locations, with rates increases therefore outstripping gains in value. Rental value growth on the Kings Road and Kensington High Street, meanwhile, has been among the lowest in Central London, which will be reflected in much lower rate rises compared to other locations.
Anthony Selwyn, head of Central London retail at Savills, adds: “As London has grown as a visitor destination, tremendous value has been unlocked in recent years so we don’t expect retail rents to rise as quickly over the next five years as they did in the previous five. The prospect of significant business rates increases on the horizon will create a cost challenge to some retailers and landlords may find themselves having to allow for a little more flexibility on deals to capture quality tenants.
“It will be prudent for owners, where possible, to look at ways of improving their offer to retailers. For example, this could include creating better configured stores and more attractive shopping environments to ensure they attract interest from retailers who in turn will have more options to consider. The rate rise will also contribute to a fall in premiums which will affect retailers’ recent ability to walk away from underperforming stores with substantial sums. Areas which see a much lower increase in rates may well show better rental growth over the next five years as they become more attractive from a cost base.
“Fundamentally, if Central London continues to attract high volumes of tourist spend, the rates change in part will be absorbed. However, it would be wrong for landlords and tenants to not be acutely aware of the changes and look at ways of best protecting their positions”.
