North East Connected

Industrial occupiers face significant increase at next rates revaluation

Commercial property consultancy Lambert Smith Hampton (LSH) is warning occupiers of industrial and logistics premises in the North East to expect a significant hike in business rates liabilities at the next revaluation.

 For many beleaguered business rates payers the 1 April 2019 was no joke. The typically light-hearted day was set as the Antecedent Valuation Date (AVD); that is the date at which all valuations of non-domestic properties will be based for the next rating list when it comes into effect on 1 April 2021.

In layman’s terms, the AVD is the date which the Valuation Office Agency (VOA) adopts to calculate a hypothetical rental value for every commercial property in the country.  This, in turn, is used to calculate rates payable through the application of a multiplier, or ‘rate poundage’. Originally scheduled for 1 April 2022, the Government has decided to bring forward the next revaluation to 1 April 2021; four years since the last revaluation, and six since the AVD.

A tale of two sectors

In theory, the non-domestic rating system should follow the market, specifically movement in activity and rents since the last time rental values were assessed. While this is likely to provide some welcome relief to bricks and mortar retailers, whose plight has risen to prominence in recent years, the growth of industrial and logistics is tipped to send rateable values for properties in this sector soaring.

 LSH’s analysis of the rental markets across England and Wales between 2015 and 2019 suggests that, while the UK’s Industrial and Logistics sector is likely to feel the biggest impact at the revaluation, the North East is not expected to be hit as hard, with rateable values set to rise by an average of 18% compared with a UK average of 25%.

Industrial & Logistics – top three maximum growth locations:

  1. Darlington (26%)
  2. Durham (22%)
  3. Middlesbrough (22%)

Industrial & Logistics – top three minimum growth locations:

  1. Outer Gateshead (15%)
  2. North Tyneside (15%)
  3. South Tyneside (14%)

Providing some welcome relief to the high street, the Retail sector is expected to fall by an average of 5% across the North East, compared with a UK average of -3%.

Retail – top three maximum growth locations:

  1. Hartlepool (-3%)
  2. Gateshead (-4%)
  3. Newcastle upon Tyne (-4%)

Retail – top three minimum growth locations:

  1. Darlington (-5%)
  2. Middlesbrough (-5%)
  3. Redcar & Cleveland (-6%)

The Office sector, which has seen steady growth over the past four years, is predicted to increase by 5% across the North East, compared with a UK average of 16%.

 Office – top three maximum growth locations:

  1. Newcastle upon Tyne Fringe (16%)
  2. North Tyneside (15%)
  3. Newcastle upon Tyne City Core (12%)

Office – top three minimum growth locations:

  1. Hartlepool (-5%)
  2. Darlington (-6%)
  3. Redcar & Cleveland (-7%)

Nationally, LSH’s research predicts that Greater London and the East of England will be hardest hit, rising by an average of up to 12.4%. Conversely, Wales is expected to see a fall in rateable values by an average of 1.8%.

Melanie Oates, Director of Business Rates at LSH Newcastle, commented:

“Inevitably this will create some winners and losers. On the plus side it helps smooth out massive swings in liabilities for occupiers and enables the VOA to iron out anomalies on a more frequent basis. Conversely, it remains to be seen whether a transitional scheme will be introduced in 2021, which is designed to limit substantial increases and decreases in liability at rating revaluations. 

“Despite our forecasted moves it is too early to accurately quantify how individual ratepayers will be affected. That said, businesses currently occupying properties in locations where rental values have increased significantly since 2015 should prepare now for rate liability rises. In particular, those in the process of currently negotiating new leases, lease renewals or re-gears should take any projected increases into account before making a decision.”

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