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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