London business rates latest 11th October 2016

With the revaluation of commercial property for business rates assessment purposes due to come into effect from 1 April next year Carter Jonas has reviewed which areas of London will likely be hardest hit in research revealed by CoStar News.

The new rateable values ascribed to commercial properties for business rates assessment purposes have just been announced and are based on the rental value of properties as at April 2015.

Given that there has been a significant increase in office rents in Central London since the last rateable value assessment in 2010, it follows that there will be a sizeable increase in rateable values, upon which business rates bills will be calculated.

The Uniform Business Rate

The extent of the increase in business rates payable will not be known until the government’s Valuation Office announces the Uniform Business Rates (UBR) multiplier which will be applied to the new rateable values to calculate an occupier’s business rates liability. An announcement on the UBR for 2017/18 is expected in December.

By How Much Are Business Rates Expected To Increase?

Based on research undertaken by Carter Jonas, and assuming that the 2017/18 UBR will be set at a similar level to the current UBR, it is possible that the business rates payable on new and refitted Grade A office space over 5,000 sq ft could potentially increase as set out in the Table above.

[Carter Jonas notes that the estimate of rates payable in 2017/18 in the table above assume that the Government sets the UBR at 50p per £1.00 of rateable value. However, until the 2017/18 UBR has been announced the impact of the 2017 revaluation of rateable values cannot be fully assessed.]

Hardest hit will be Clerkenwell and Spitalfields on the City fringe specifically with forecast increases of 98.3% and 97.6% respectively. The South Bank, King's Cross and the City of London are all in line for significant rises at 69%, 67.7% and 62.5% respectively.

Michael Pain, Head of Carter Jonas’ Tenant Representation Team, said: “The Clerkenwell, Shoreditch and Spitalfields districts in the City Fringe are predicted to witness the largest business rates increases, following the 2017 rates revaluation, with forecast rises of over 95%, assuming that the 2017/18 uniform business rate is set at a similar level to today’s UBR.

"These very substantial predicted increases in business rates payable are a direct result of regeneration initiatives in each location and the development of new, better specified, office buildings that have set new rent benchmarks and correspondingly higher rateable values. Similar comments also apply to London Bridge and King’s Cross where business rates are anticipated to increase by over 65%. The City core is also forecast to see business rates rise by over 60%."

Experts predict that the biggest rises will often be for business rates for retail properties in the capital which will rise, on average, by 14% with industry analysts forecasting increases of 80% to 120% for shops on Oxford Street, Regent Street and Bond Street.

Rates bills for office properties are predicted to rise sharply, increasing by 10% on average across the UK. According to Colliers International, the draft rateable values suggest that occupiers of central London skyscraper will be among the worst hit, with tenants on some floors in the Shard steeling themselves for a 50% business rate rise.

However, elsewhere in England and Wales rates are set to fall. Offices in the North East as well as Yorkshire and Humber will see the biggest decline of 21%. In the south west the estimated decline in bills for retail and office properties was 14% and 10% respectively while in the south east they will fall, on average, by 8% and 3%.

To limit the negative impact of the forthcoming rates revaluation on businesses, the Government is intending to introduce a transitional relief mechanism that will phase in increases in the business rates payable over a five year period.

However, the Government’s current transitional relief proposals will still result in occupiers bearing rates increases of up to 33% or 45% in the first year of the new revaluation for properties with a rateable value of over £100,000, depending upon which proposal is adopted.

Carter Jonas said this is small comfort for Central London businesses that have had to bear rent increases of more than 25% in many parts of London over the last five years.

The transitional relief proposals are currently subject to consultation with occupier and property consultancy groups and an announcement on which transitional relief scheme is to be adopted is expected in December.

Appealing against a rateable value assessment

Ratepayers will be able to appeal against a rateable value assessment that is considered to be too high, providing that there is evidence to support a lower rateable value. A new, streamlined, system of appeal is to be introduced with effect from 1 April 2017 based on a check, challenge and appeal process.