Business Rates Revaluation and its Effects on Rents

I have been surprised that I have seen no-one from the property development and investment industries talk about, or even mention in passing, the effect of the Business Rate Revaluation on the rents they can charge for commercial premises.

Everything else being equal, if the cost of running a business goes up because of increased Business Rates, businesses can’t afford to pay as much in rents.

In the short-term there isn’t much most businesses can do about this. But when the time comes for lease renewals or rent revaluations it could be that tenants push for no or low increases. New lettings may even achieve lower rents than is currently the case.

Along with this comes a whole range of possibilities and scenarios for the commercial property and development industries, and even the economy at large. Yet, I have heard no-one talking about this – until a few days ago.

Derwent London’s Chief Executive, John Burns has said that an average rise in business rates in London of 10% will increase pressure on tenants, saying “we will have to see how it goes”.

I think this “we will have to see how it goes” is the first recognition that the Business Rates revaluation will affect the rents which can be charged and made to stick, and thus development values.

I think this is good – it is better that the tax payer gets the money to spend on infrastructure and services than the landowners get this free, unearned gift. The only thing missing is the removal of the Business Rates Cap, where the total amount raised is capped and only uprated by the rate of inflation– we don’t cap the amount which we raise from income tax and change the rate charged accordingly, so why do this with business rates? There is a lot we could do with this additional tax income.

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Business Rate Revaluation and Effect on Rents

I have been surprised that I have seen no-one from the property development and investment industries talk about, or even mention in passing, the effect of the Business Rate Revaluation on the rents they can charge for commercial premises.

Everything else being equal, if the cost of running a business goes up because of increased Business Rates, businesses can’t afford to pay as much in rents.

In the short-term there isn’t much most businesses can do about this. But when the time comes for lease renewals or rent revaluations it could be that tenants push for no or low increases. New lettings may even achieve lower rents than is currently the case.

Along with this comes a whole range of possibilities and scenarios for the commercial property and development industries, and even the economy at large. Yet, I have heard no one talking about this – until today.

Derwent London’s Chief Executive, John Burns has today said that an average rise in business rates in London of 10% will increase pressure on tenants, saying “we will have to see how it goes”.

I think this “we will have to see how it goes” is the first recognition that the Business Rates Revaluation will affect the rents which can be charged and made to stick, and thus development values.

I think this is good – it is better that the tax payer gets the money to spend on infrastructure and services than the landowners get this free, unearned gift. The only thing missing is the removal of the Business Rates Cap, where the total amount raised is capped and only uprated by the rate of inflation– we don’t cap the amount which we raise from income tax and change the rate charged accordingly, so why do this with business rates? There is lots we could do with this additional tax income.

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Making Places which Work for People – by involving the people

If we leave the development and regeneration of cities to only one form of capital (economic) we will get a one dimensional city which only works for one section of society.

I recommend an article by Philippa Nicole Barr of Macquarie University as a good read about how we need to bring together all forms of capital: social; cultural; intellectural; political; and natural; in order to balance the effects of economic capital so as to make ‘Places Which Work For People’ – all people.

I give a taste by quoting a paragraph here:

“The redevelopment of existing communities and the construction of new urban areas is frequently funded by private companies looking to make a high return on investment. This is achieved by high-value sales or rental rates. But without regulation, these processes create conditions that exclude or disempower poorer people within cities; for example, by limiting access to public spaces or making rent and home ownership unaffordable. One recent study revealed that, compared to other groups of people, poorer renters move more frequently into disadvantaged areas, each time experiencing a decline in their living standards”.

Link to the full article:

https://theconversation.com/heres-how-to-give-people-a-greater-say-in-their-cities-62672?utm_medium=email&utm_campaign=Latest%20from%20The%20Conversation%20for%20October%2011%202016%20-%205779&utm_content=Latest%20from%20The%20Conversation%20for%20October%2011%202016%20-%205779+CID_926dacc321f58c95e4e3aefadfa7e3e5&utm_source=campaign_monitor_uk&utm_term=Heres%20how%20to%20give%20people%20a%20greater%20say%20in%20their%20cities

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Entrepreneurial Development Model for Town Centres

I have been saying for some time now that many of the UK’s struggling town centres and high streets will not be improved or regenerated via the traditional property development model. Instead, in order to improve, they need to use the Entrepreneurial Model.

So, it is interesting to see that some Local Authorities have decided to buy (or a looking in to buying) high street properties and shopping centres. However, to make a success of this ownership these local councils will need to employ a different sort of manager to those they are used to recruiting, and they can’t depend on property agents to make a success of it for them.

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What has Hip Hop music to do with urban regeneration?

What has Hip Hop music and gang culture to do with Urban Regeneration and Urban Planning?

On Friday I watched the BBC4 programme ‘Rubble Kings’ which told the story of how gang culture in parts of New York came out of the damage done to inner-cities by top-down urban planning and de-industrialisation, and how eventually gang leaders decided that other gangs were not the problem; and instead of fighting each other they needed to fight ‘the man’ by coming together, and to re-build their areas from the bottom-up instead of taking what the top-down was willing to ‘give’ them. Part of this community rebuilding came from Hip Hop music and the music scene.

I recommend you view it – there isn’t much Hip Hop music in it as the programme is really about regeneration rather than music.

Link is here: http://www.bbc.co.uk/iplayer/episode/b07vxmxw/rubble-kings?suggid=b07vxmxw

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Skills Shortages: lessons from the recent past

I can recommend the BBC Programme which celebrates the 50th anniversary of the opening of The Severn Bridge (‘The Severn Bridge at 50: A High Wire Act’). You can find it on BBC iPlayer here –

http://www.bbc.co.uk/iplayer/episode/b07tmmwy/the-severn-bridge-at-50-a-high-wire-act?suggid=b07tmmwy

I particularly liked the contribution from Michael Parson (around 05.58 minutes): As a new civil engineer, fresh out of Bristol University, “I was in charge (it’s a job to imagine it nowadays) of writing the specification for the new bridge. I was the only one working on it.”

I think this experience has lessons for us in 2016, when we are hearing warnings about skills shortages in the UK’s infrastructure and construction industries, which will delay or prevent the delivery of many large projects and programmes which the UK needs to deliver.

Instead of looking for people with exactly the ‘right’ experience; and moaning when we can’t find them, we need to give opportunities and responsibilities to young, newly qualified engineers (or indeed older workers with different experiences). This is what we had to do at a time when resources were still scarce in post-war Britain, and as we can see from The Severn Bridge a good job was done.

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Economic re-balancing and Regeneration need short, medium and long-term strategies

This is quite short – but wouldn’t quite fit into a tweet:

Many of our economic and regional re-balancing processes will take many years if not a few generations before the required re-balancing is achieved. Therefore, we must also have short and medium term transition strategies to ensure that current citizens are to have fulfilling lives.

A lot more could be said, but this will do for now.

 

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