North East North East Region Faces a Challenging Landscape
England & Wales could rise by as much as £3.3 billion in the new rating list. This would result in the rates liability for the sector increasing by £1.88 billion in 2023/24, up 25% from the previous year.
Growth in the rates liability for pure online logistics may help diffuse some of the arguments over the need for an online sales tax, as these businesses will now be paying proportionately more in rates. An online sales tax is, however, a complicated issue and needs to be treated with caution, as so many traditional retailers are multi-channel and thus could be hit twice. With much of the logistics sector low margin, significant increases in rates liability will hit overheads.
What is clear is that the 2023 rating revaluation cannot come fast enough for the traditional retail sector. Increasingly over the last six years the tax has changed, from simply being a challenging cost across the retail sector, to a significant burden, which in so many cases has become increasingly disproportionate against a backdrop of diminishing margins.
HMRC
Undeniably the current business landscape is challenging for the North East as it faces a changing business environment over which it has no control, writes Chris Dobson, editor, ComPropNEE.
But first the challenges, which are not unique to our region, stemming some would from Ukraine, others would say its global and there is not a lot we can do about it while others point steady, accusing, arms to the mismanagement of our economy by the present Government.
The tumble dryer of challenges includes base rates and where they seem to be heading, exchange rates and the impact on exports and the wider economy, then there is inflation, soaring energy costs with the depressing conclusion that we are all heading for a cold, miserable, Siberian Winter.
Take heart, it will soon be 2023. Avison Young has just published its ‘The Great Rebalancing Act’ research report which identifies that the 2023 revaluation presents the Valuation Office Agency (VOA) with the most challenging backdrop to undertake a national revaluation in its entire history.
The 2023 business rates revaluation is the first in six years and will take effect from 1st April 2023. New rateable values will be placed on all 2.1 million properties liable for business rates across England and Wales, based on April 2021 rental levels.
Offices, retail and industrial properties comprise approximately three- quarters of the total rating pool in England & Wales. Avison Young is predicting that the retail sector, which was comfortably the most dominant sector in the 2017 revaluation at £21.5bn, is now third, having dropped in value by 26% to £15.9bn.
Logistics and industrial take top spot increasing their total rateable value pool from £14.6bn to close to £17.9bn. Offices remain broadly static moving from £15.5bn to just over £16bn. Undeniably, the 2023 rating revaluation will result in a significant rebalancing of the tax take. Avison Young is predicting that the total Rateable Value (RV) pool in England will fall 1.2% from £67.5 billion in 2017, to £66.6 billion in 2023, and following inflationary pressure within the UK economy the UBR be 52.5p from April 2023.
Bank House_View_P-Compress 64
The biggest increases in liability will be for the industrial sector, in particular logistics. The industrial/ logistics rateable value pool in
Grey Street Artists Impression
Landlords and developers are cautious in the sector, delaying much needed investment to help re-purpose and re-invigorate the traditional retail experience across many retail locations up and down the country.
Returning to the ‘here and now’ the regional headquarters of the Inland Revenue nearing completion in central Newcastle. With 7,000 jobs, this will be a tremendous boost for a city centre which remains like all major centres affected by the COVID pandemic.
However Avison Young’s Big Nine report, which has just been published, shows enquiry volumes and viewing activity is down and there is evidence that tenants are becoming more reluctant to commit. This is reflected in take-up figures which have fallen quarter-on-quarter in Newcastle and are once again below long-term average levels.
Further availability of good quality space remains low largely due to a lack of development deliveries in recent years. Overall, space being marketed as available remains 19% below long-term average levels. The future development pipeline is also very constrained with Newcastle’s development-pipeline-currently-under-construction is just 190,000 sq. ft, and 50% of that is already pre-let.
These tight supply conditions, particularly of prime quality space, are supporting rental levels, with prime rents and rental incentives holding steady. Occupiers who are willing to commit are competing for the best space they can afford.
COMMERCIAL PROPERTY MONTHLY 2022
The crisis on the High Street is not solely because of business rates. Fundamental change in consumer behaviour driven through growth in on-line sales is of course the driver. The problem with business rates is how slow the system can be to respond to these challenges, so exacerbating the financial struggles across the sector. It is not just an occupier problem.
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