Business Rates. How the 2017 Rating Revaluation will affect High Street Retailers PREPARED BY COLLIERS INTERNATIONAL

Transcription

1 Business Rates How the 217 Rating Revaluation will affect High Street Retailers PREPARED BY COLLIERS INTERNATIONAL

2 Contents 1 Introduction 1 2 Background to Changes in Retail 2 3 Our Approach 4 4 and Losers 8 5 Conclusion Our Rating Team 1 Introduction COPYRIGHT COLLIERS INTERNATIONAL 216 Business rates is one of the largest outgoings for organisations and brings in 28bn to the Government every year. However, due to a dated and somewhat cumbersome system, it is often the focus of criticism and the current Government are promising to address this. In 215 the Government postponed Business Rates Revaluation by two years. This has resulted in an interval of more than five years between the two ratings lists for the first time since 199. During this time we have emerged from recession, seen the property industry boom and bust, and with the 217 Rating Revaluation imminent it has become evident that the disparity between rental levels in core and tertiary sectors is increasing, which will affect all occupiers. Although the Government has announced a major review of the Business Rates system, the 217 Rating Revaluation is well underway and the Valuation Office Agency (VOA) surveyors are spending a considerable amount of time collating evidence and working towards delivering the draft list in October 216. In this report we summarise the major issues and assumptions we have made in arriving at our opinion of what will happen to the rates liabilities for retailers from 217 onwards. This report complements a larger piece of research where we have compiled comprehensive data on all towns and locations in the UK. BUSINESS RATES HOW THE 217 RATING REVALUATION WILL AFFECT HIGH STREET RETAILERS 1

3 2 Background to changes in retail Colliers International has been publishing its flagship Midsummer Retail Report annually for the past 2 years. This research enables our Rating team to provide a comprehensive and unrivalled view on what will happen to Rateable Values (RVs) throughout England, Wales and Scotland. For this report, we looked at the 21 Rating List entries for the 421 retail centres studied in the Midsummer Retail Report 215, we tracked the rental movements of the locations, monitored the vacancy level in 15 representative locations and made use of our access to the Local Data Company s comprehensive list of vacancies. You will find this report invaluable as it publishes both the information on how rental values have changed between 1 April 28 (the valuation date for the 21 Rating List) and 1 April 215 (the valuation date for 217 Rating List) and provides a detailed analysis of the 421 retail centres where several components were used to determine what the rental values were. As well as being the only property consultants with this level of detail, our Rating team combines a breadth of knowledge and experience from our wider Retail Agency, Investment & Development, Valuation and Research teams, in order to bring retailers the best of services for managing and mitigating their rates liability. THE CURRENT 21 RATING LIST ASSESSMENTS DON T REFLECT THE TRUE LEVELS OF VALUE ON 1 APRIL 28. Those within the industry will appreciate that some 21 assessments were undervalued. This may have happened because rental information was limited and there was pressure on the VOA to reduce the number of appeals and the amount of RV they would have to give away on appeal. Changes over the last few years and the Localism Act 211 mean that billing authorities (BAs) are now active participants in the process of making sure that RVs are maintained at as high a level as possible. Monitoring of assessments and liaison with the VOA now takes place on a regular basis. It is clear from discussions we have had with the VOA, as well as with BAs, that because 5% of the income is now retained by BAs (soon to rise to 1%), they have an interest in making sure that the VOA increase RVs as much as they can in order to help bridge the gap in how they are funded following cuts to their finances. In effect, we have a situation where the 21 Rating List High Street Zone A s are conservative in many places, in contrast to the expected 217 RV figures which are going to be full, bullish and in many cases higher than they should be. This will certainly be the case if the VOA, under pressure from BAs, look at headline figures and either ignore incentives or devalue them in a way which lessens the impact of them on the headline rent. The issue for the Government is that by delaying the revaluation from 217, they have helped fuel the growth in the rents in the best locations, while at the same time assisting in depressing rents in the poorest. 2 BUSINESS RATES HOW THE 217 RATING REVALUATION WILL AFFECT HIGH STREET RETAILERS COPYRIGHT COLLIERS INTERNATIONAL 216 COPYRIGHT COLLIERS INTERNATIONAL 216 BUSINESS RATES HOW THE 217 RATING REVALUATION WILL AFFECT HIGH STREET RETAILERS 3

4 3 Our approach Our June 215 edition of the Midsummer Retail Report looks closely at the 421 retail centres and arrives at the rental value as at 1 April 215 for a typical unit based in the prime location. In order for the value to alter from one year to the next, there has to be clear evidence of a transaction that has taken place and all of those details are verified by our Research team to obtain a net effective rental value. To be clear, the value is not an opinion of the Zone A for each location but is the actual value substantiated by rental transactions in the real world. If there are no transactions for a particular location then the value is not altered from one year to the next. In order to arrive at a clear estimate of rates liability from 217 onwards there are three parts to the equation: 1 RATEABLE VALUE Rental values as at 1 April UNIFORM BUSINESS RATE (UBR) Estimate of the UBR (Non Domestic Rates Multiplier) and any supplements 1 Rateable Value It is not merely a case of looking at the change between our Midsummer Retail Report Values in 28 and those in 215. It is necessary to look closely at the values that the VOA have placed on these locations for the current 21 Rating List, which in a lot of cases differ quite significantly from the Midsummer Retail Report values published eight years ago. We believe comparing existing RVs with 215 rental values gives a far more accurate picture of how the liabilities will change in Uniform Business Rate (UBR) 3 TRANSITIONAL ARRANGEMENTS What transitional scheme, if any, will be applied In order to arrive at the UBR (Non Domestic Rates Multiplier), there are a number of inputs and assumptions that need to be made. The 217 Rating Revaluation will produce the largest changes in RV for a generation businesses may be sleepwalking into the effects without planning for the consequences, both good and bad. It is necessary to look at the changes in 21 Rating List entries and 1 April 215 Rental Values. This needs to apply to all properties that make up the rating list including the total value included in the Central Rating List. Our estimates of the multipliers for England, Wales and Scotland over the period of are shown in the graphic on the following page. 4 BUSINESS RATES HOW THE 217 RATING REVALUATION WILL AFFECT HIGH STREET RETAILERS COPYRIGHT COLLIERS INTERNATIONAL 216 COPYRIGHT COLLIERS INTERNATIONAL 216 BUSINESS RATES HOW THE 217 RATING REVALUATION WILL AFFECT HIGH STREET RETAILERS 5

5 MAXIMUM ANNUAL INCREASE IN RATES PAYABLE MAXIMUM ANNUAL DECREASE IN RATES PAYABLE SCOTLAND % 2% 217/18 218/19 219/2 > It may be noted that the multipliers in England will only be slightly higher in than in the year This multiplier differs from figures provided by many reports published already but we believe it has a greater degree of accuracy for the following reasons: It reflects the change between current 21 actual RVs and rental values as opposed to the change in rental values between 28 and 215 and reflects the under valuation of certain parts of the country. If applied to all bulk classes and non-bulk classes, the total RV provides an increase. As opposed to what would be an overall decrease in rental values if RVs in their current levels were ignored. We also believe that the reason why the headline multiplier will come in at 49.8p in England, is because of a psychological and political dimension which will drive the new headline multiplier to a figure below 5p. In order to arrive at these assumptions we have considered the relative differences between current rental values and the 21 Rating List across all of the bulk classes, with information provided by various sources including our own Research team. > The loss of revenue by BAs resulting from appeal is assumed to be 2%. WALES p 5.5p 49.8p 217/18 218/19 219/ p 52.2p 51.7p 5.9p 49.8p 48.5p 217/18 218/19 219/2 Small Large ENGLAND p 52.2p p p p p /18 218/19 219/2 Small Large 3 Transitional Arrangements We have made the following assumptions in relation to where and to what extent transitional arrangements will apply from 217. ENGLAND We believe there will be a transitional scheme in England as per the thresholds illustrated on the right. WALES The Welsh Assembly did not approve a transitional scheme in Wales for the 21 List and we don t believe there will be a transitional scheme for the 217 Rating List. SCOTLAND As per the existing arrangement, we don t believe there will be a transitional scheme in place in Scotland for the 217 Roll % 15% 1% 1% 217/18 218/19 219/2 Small properties Large properties % -7.5% Small properties -12.5% -5% -12.5% Large properties With the 217 Rating Revaluation imminent, what has become evident is the increasing disparity between rental levels in core and tertiary centres, which will affect all occupiers. 6 BUSINESS RATES HOW THE 217 RATING REVALUATION WILL AFFECT HIGH STREET RETAILERS COPYRIGHT COLLIERS INTERNATIONAL 216 COPYRIGHT COLLIERS INTERNATIONAL 216 BUSINESS RATES HOW THE 217 RATING REVALUATION WILL AFFECT HIGH STREET RETAILERS 7

6 Losers CENTRAL LONDON BIGGEST INCREASES CENTRAL LONDON BIGGEST DECREASES 4 and losers Across the following pages, we set out the biggest winners and losers where the data highlights variances across the country. Of the 421 retail centres monitored, 324 witnessed a decrease in rental values; 76, mostly in London and the South East, have seen an increase; and only the remaining 21 have stayed the same. We predict that the headline multiplier in 217/18 will not rise above 5p. However, there is the added complication of whether there will be an additional transitional scheme, or special provisions, which will further affect retailers. We have assumed that there will be a transitional scheme in England for the following reasons: > There are significant fluctuations in rental value, particularly in the retail market, with decreases of 8% and increases in excess of 4%. > Politically, it will be difficult not to have a scheme in place in England. We believe that the scheme will apply for a shorter duration than at present, perhaps three years, and the percentage yearly caps will be higher than they have been for the current 21 Rating List. Jermyn Street James Street Strand New Bond Street Old Bond Street Coventry Street Leicester Square Marylebone High Street Redchurch Street Bishopsgate Dover Street OUTER LONDON BIGGEST INCREASES +133% +72% +93% +69% +169% +186% +239% +146% +131% +181% +415% % CHANGE IN RENTAL VALUE Fleet Street -13% Tottenham Court Road -12% Liverpool St/Broadgate -3% Floral Street Victoria Street -6% OUTER LONDON BIGGEST DECREASES Putney +12% Ealing -46% Clapham Junction Hammersmith +78% +89% Ilford -38% Enfield Islington Hampstead Wandsworth Camden Westfield London Brixton Southall +1% +29% +53% +67% +91% +12% +128% Harrow Barking -3% Hounslow -1% Sutton -19% Bexleyheath -5% Twickenham -7% Romford Lewisham -3% % CHANGE IN RENTAL VALUE BUSINESS RATES HOW THE 217 RATING REVALUATION WILL AFFECT HIGH STREET RETAILERS COPYRIGHT COLLIERS INTERNATIONAL 216 COPYRIGHT COLLIERS INTERNATIONAL 216 BUSINESS RATES HOW THE 217 RATING REVALUATION WILL AFFECT HIGH STREET RETAILERS 9

7 Losers SOUTH EAST BIGGEST INCREASES SOUTH EAST BIGGEST DECREASES EAST MIDLANDS BIGGEST DECREASES MERSEYSIDE BIGGEST DECREASES Farnham +14% Dover Alfreton -8% Southport Oxford Winchester Brighton Guildford +13% +18% +33% +42% Gillingham Fleet Fareham Bracknell Worthing Abingdon Slough Chatham -9% -16% -23% -22% -24% -32% Mansfield Spalding Grantham Boston Kettering Buxton Newark -3% -8% -14% -14% -15% -23% St Helens Birkenhead Bootle Liverpool -29% -36% -38% Marlow +58% Gravesend Chesterfield -1% Ellesmere Port -1% % CHANGE IN RENTAL VALUE SOUTH WEST BIGGEST DECREASES EASTERN BIGGEST DECREASES NORTH EAST BIGGEST DECREASES Yeovil Dunstable -25% Redcar -38% Gloucester -38% Lowestoft Whitley Bay -37% Torquay -45% Southend-on-Sea -39% South Shields Swindon Hemel Hempstead -39% Stockton-on-Tees -42% Bournemouth -3% Waltham Cross -37% Middlesbrough -37% St Austell Great Yarmouth Hartlepool Taunton -25% Harlow -8% Peterlee Christchurch -18% Stevenage North Shields -37% Penzance -22% Kings Lynn -26% Newcastle Upon Tyne -25% Weston-super-Mare Bedford -1% Berwick-upon-Tweed -16% BUSINESS RATES HOW THE 217 RATING REVALUATION WILL AFFECT HIGH STREET RETAILERS COPYRIGHT COLLIERS INTERNATIONAL 216 COPYRIGHT COLLIERS INTERNATIONAL 216 BUSINESS RATES HOW THE 217 RATING REVALUATION WILL AFFECT HIGH STREET RETAILERS 11

8 NORTH WEST BIGGEST DECREASES YORKSHIRE & HUMBER BIGGEST DECREASES Stockport Warrington Oldham Ashton-under-Lyne -33% Rochdale -4% Barrow-in-Furness Northwich Stretford -31% -29% -32% Whitehaven -6% Crewe -38% WEST MIDLANDS BIGGEST DECREASES Scunthorpe Dewsbury Keighley Bradford Rotherham -19% Halifax -15% Scarborough -6% Sheffield Wakefield -9% Grimsby -43% -4% -22% -24% WALES BIGGEST DECREASES 5 Conclusion We understand that budgeting for 217 onwards is high on the agenda for many businesses, large and small. This report contains data that will support businesses in this process and provides a practical interpretation of key factors they will need to consider. Colliers are ahead of the VOA in terms of our research and also our understanding and appreciation of the dynamics and drivers behind setting a multiplier and transitional scheme. Our unrivalled knowledge of the national rental values across the retail sector will give you confidence in getting a budget figure which reflects an accurate level of value according to the commercial rental evidence today, instead of waiting for 6 to 12 months. This report demonstrates the need for retailers, particularly those with regional portfolios, to look at their planning and budgeting. Changes in liabilities, both positive and negative, could impact on the sustainability of stores, whilst also providing more leverage for rental negotiations from the perspective of both landlord and tenant. Nuneaton -21% Newport -71% 217 is not far away and for many businesses entering the budget period, we hope you will make use of this primary data to pro-actively manage your liabilities. Kidderminster -42% Port Talbot -64% Rugby -31% Llanelli -42% Tamworth -56% Neath -56% West Bromwich -19% Haverfordwest Northfield (Birmingham) Pontypridd -44% Bromsgrove -42% Bridgend -4% Halesowen -31% Llandudno -4% Kings Heath Merthyr Tydfil Newcastle-under-Lyme -22% Wrexham BUSINESS RATES HOW THE 217 RATING REVALUATION WILL AFFECT HIGH STREET RETAILERS COPYRIGHT COLLIERS INTERNATIONAL 216 COPYRIGHT COLLIERS INTERNATIONAL 216 BUSINESS RATES HOW THE THE RATING RATING WILL REVALUATION AFFECT HIGH EFFECT STREET ON RETAILERS 13

9 Our Rating Team With business rates experts present across our national offices, we can manage large portfolios on a local level rather than from one centralised office. This local presence means that we have stronger working relationships with local VOA surveyors and billing authorities, along with local knowledge of markets. This enables us to maximise savings and identify opportunities such as Material Changes of Circumstance Appeals at an early stage. JOHN WEBBER Head of Rating john.webber@colliers.com STEVE PLOWMAN Director Bristol steve.plowman@colliers.com MICK O DONOGHUE Director Leeds mick.o Donoghue@colliers.com HOWARD SMITH Director London howard.smith@colliers.com GORDON GARNETT Director Midlands gordon.garnett@colliers.com ADAM BURKE Director North adam.burke@colliers.com DARREN WILLIAMS Director South darren.williams@colliers.com PHILIP HARRISON Director Accurates philip.harrison@accurates.com Our rating and audit specialists are from both the market, billing authorities and the VOA. They have experience across all aspects of retail including: high street shopping centres, out of town larger stores, supermarkets and more niche retail outlets. With our services being delivered in-house, this gives full quality control over delivery and timescales without the need to outsource to a third party. ALEX WHITE Director London alex.m.white@colliers.com PETER MUIR Director Scotland peter.muir@colliers.com For further information or an informal discussion please contact our team on: rating@colliers.com Colliers International is the licensed trading name of Colliers International Rating UK LLP which is a limited liability partnership registered in England and Wales with registered number OC Our registered office is at 5 George Street, London W1U 7GA.