Business rates larger issue than rents in sector deals - Colliers

Business rates costs are becoming a bigger issue than rents in many sector deals - particularly retail - and are increasingly affecting businesses considering new leases, according to rating experts at Colliers.

John Webber (pictured), head of Business Rates at Colliers, says that potential occupiers of properties are looking even more carefully at their business rates liabilities, given the100 per cent rates holiday for retail and leisure businesses has now come to an end.

Although smaller retailers will still receive some reliefs, up to two thirds of their rates bill, John says that many larger players in the sectors are now back to paying virtually full rates, due to the £2m cap on any relief for the following nine months of the year.

Research from Colliers published in its Midsummer Retail report reveals the shocking state of the retail market where rents have fallen by as much as 50 per cent since their peak in the noughties.

In what it describes as a “brutal transition ”, Colliers estimates that around one in three shops in the UK are either vacant, not income-producing or occupied on short-term arrangements.

Unlike rents, John says business rates cannot be negotiated down on the grounds of current market conditions since they are set by the Government and paid to local authorities over a five-year period at a fixed amount.

He said: “Not only do retailers pay an unfair proportion of the business rates burden (between a quarter and a third - or £7.6 billion of the £26 billion net collected), but these rates are still tied to higher rental levels in 2015, given the lack of a revaluation since 2017.

“As a result, they are ridiculously high and totally out of touch with the market we are seeing now.

“We had a client looking at an ex-Debenhams store where they were able to negotiate a rent of £100,000 a year. However, the property had a rateable value of £700,000 which equates to a rate bill of £350,000 a year. Not surprising it was a deal breaker for the potential occupier. ”

“The government needs to bark up the right tree.

“Unless it gets its business rates strategy right, space will not be re-occupied. It 's why we 've got so many voids. Gap has just announced it is closing all its 81 stores in the UK and Ireland. Two of those stores (Canada Place and Westfield) pay rates of over £500,000 a year- that 's a big liability for another retailer to take on.

“That 's why we 've been calling for an extension to the business rates holiday for the retail and hospitality sectors by at least three months and for proper reform of the antiquated rates system. ”