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London

JLL Retail research on impact of UK Business Rates

40% of UK retail locations losing out on the back of the deferred Rating Revaluation


LONDON, 10th March 2014 - Recent research undertaken by JLL looks at the impact a 2015 Rating Revaluation would have had on the top c1,000 retail destinations in the UK, had it taken place as originally planned on 1 April 2015. The deferral of the rating revaluation to 2017 has created short-term winners and losers.  Winners are defined as those locations currently benefiting from a deferred revaluation – in other words those locations that would have seen an uplift in rates in 2015 and therefore benefit from a postponement. Conversely, those that would have benefitted from a 2015 revaluation by a reduction in rates paid are losing out.
 
Winners and losers…
When looking at April 2013 rents as a proxy for Rateable Value (1 April 2013 would have been the Antecedent Valuation Date for the 2015 revaluation), coupled with a government proposed increased multiplier initially anticipated for 2015,  32 per cent  of locations would have remained broadly unaffected by a 2015 revaluation; 28 per cent are short-term winners, but 40 per cent  are losing out as a result of the postponement.
 
The sting in the tail; short term winners will feel the pinch in 2017…
The clearest current winner is London, registering the greatest proportion of retail locations benefitting in the short-term from the postponement (52 per cent).  But whilst benefitting in the short-term, a number of prime locations will see considerable upward adjustments in rates in 2017, assuming the current model is maintained and revaluations trigger uplifts in rates payable, especially those locations that have seen significant rental growth since 2008 and where rental growth momentum continues.
 
The effects of polarisation …
Locations that saw unsustainable rental growth to 2008 then significant subsequent rental declines are hardest hit, as rates are currently being paid on 2008 Estimated Rental Values, despite in some instances rents having fallen by over 50 per cent. In some smaller regional retail locations, rents never saw the dizzy heights, so any subsequent rental falls have been marginal. In some instances towns and cities will have both winners and losers, whereby polarisation has driven rents in the core, prime locations, whilst weaker secondary has continued to deteriorate.
 
This research focusses on c1,000 retail locations across the UK and monitors the headline rent during 2008 and 2013; it is not therefore representative of the entire market. Including all secondary and arguably tertiary retail locations would inflate the number of short-term ‘losers’. The pain is most acute at the bottom end of the market and a solution to alleviate pressure on hardest hit areas is paramount.
 
James Brown, Head of European Retail Research at JLL comments: “Some retail locations have been hammered by both cyclical headwinds and changing requirements for space from retailers grappling with structural change. In some instances business rates are the millstone dragging high streets under.”
 
Tim Vallance, Head of UK Retail and Leisure at JLL adds: “The system isn’t flawed, it is just lagging changes in market values. Further damage to the UK high street is inevitable if revaluations are deferred. We need to bring forward valuations and to ensure future valuations are undertaken on a more frequent basis; structural change is playing out and the retail landscape is changing before us. Changes in market rents will move with changing demand for space, business rates should also. Retailers should be careful what they wish for when talking about a sales tax alternative, this would create another layer of complexity and retailers with stronger brands might be penalised.”
 
Edward Cooke, Director of Policy at BCSC said: “Delaying the business rates revaluation was madness and based on spurious data. As this latest research shows, the regions most needing support were most damaged from the delay. Lessons must be learned and, although a U-turn is clearly not on Government's priority list, it must use the time until 2017 to reform the system. As a start, this means introducing yearly revaluations and reviewing annual increases based on September's RPI.”
 
Tim Beattie, Lead Director UK Rating at JLL concludes:  "This is the most detailed research undertaken on the impact the postponement of the 2015 Revaluation has had on the retail sector and it is clear that this decision is further compounding the challenges many retailers are facing in an increasingly competitive sector. The government should consider bringing forward the 2017 Revaluation to 2016 but keep the existing antecedent valuation date of 1 April 2015.