Logistics set to become most valuable property sector as retail drops to third - report

The 2023 revaluation of business rates will deliver the long-awaited rebalancing of the tax base to the benefit of traditional retail - but at a cost for the logistics and industrial sector.

That 's according to detailed research by real estate firm Avison Young.

The retail sector, which was comfortably the most dominant sector in the 2017 revaluation at £21.5bn, is now forecast to drop to third, having fallen in value by 26 per cent to £15.9bn, saving the sector £8.5bn over three years.

Logistics and industrial takes the top spot, having increased its total rateable value pool from £14.6bn to close to £17.9bn. Offices remain broadly static moving from £15.5bn to just over £16bn.

For the first time since 2005, London 's share of the rating pool will not increase at the 2023 revaluation.

Avison Young forecasts that London 's share will remain broadly constant at 31 per cent, the same percentage share as in the current 2017 revaluation.

The strongest performing logistics sector is not dominant in the capital and this has somewhat curtailed London 's historically unparalleled growth.

While the growth in logistics has undoubtedly been a key driver for the regions, this was supported by strong growth in the office markets in many of the regional cities which have recently faced supply constraints.

These strong sectoral performances helped counterbalance the large falls in rateable values in the retail sector.

These were particularly stark in the regional secondary towns and secondary pitches in the larger cities.

Despite this significant rebalancing and the impact of Covid-19, Avison Young predicts that the level of the Uniform Business Rate (UBR) will not rise steeply, increasing by only 1.6 per cent to 51.7p in England. In Wales, the increase will be more severe, rising by 7.5 per cent to 58.7p.

Key findings from the report include:

• The total Rateable Value (RV) pool in England will fall 1.2 per cent from £67.5 billion in 2017, to £66.6 billion in 2023.
• Consequently, the English UBR is expected to rise from 50.9p (2022/2023) to 51.7p at the start of the new rating list.
• The industrial/logistics rateable value pool in 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 £1.86 billion in 2023/24, up 25 per cent from the previous year.
• Retail will see dramatic falls in rateable values, with rateable values predicted to fall by 26 per cent between the 2017 and 2023 rating lists, equating to a loss in rateable value of over £5.6 billion. Retail warehousing is showing the largest fall of any sub-sector at over 29 per cent.
• The office sector is showing limited growth between the two revaluations. A minimal uplift of 4.3 per cent nationally is expected. Growth was strong until the end of 2019. However, this has fallen back as a consequence of the Covid-19 pandemic.

David Jones, principal and managing director of business rates at Avison Young, said: “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.

“As a result, we are calling on the Government not to introduce a downwards transition scheme which is penal to struggling businesses. Retailers and other sectors devastated by Covid-19 must receive the full benefit of their business rates reduction from day one of the new revaluation. After all, what is the point of more regular revaluations if downwards transition prevents the true savings from being realised?

“Even with a 2023 revaluation, traditional retail will continue to pay the highest proportion of business rates to total overheads. The Government has to put a break on the tax, and we continue to advocate a reduction in the UBR through freezing business rates at 45p and tying in future business rates growth to rental growth, rather than inflation. ”

The full report - 'The Great Rebalancing Act - Assessing the impact of the 2023 revaluation ' is available to view here.