Industrial Occupiers – The Impact of the 2023 Revaluation
The 2023 Revaluation for Commercial Property came into effect on 1 April 2023. The Revaluation is based on the rental value of properties on 1 April 2021. Any revaluation presents The Valuation Office with challenges in accurately valuing the different property sectors, but April 2021 could arguably be the most testing revaluation date for decades. The previous revaluation date was April 2015 and in that time Brexit, changing EPC requirements, changes in consumer spending habits and a global pandemic have all taken a significant toll on commercial property values.
Rental values have surged in the Industrial sector since 1 April 2015 due to businesses being forced to react to a sharp increase in consumer demand for online goods which was accelerated further by the Covid-19 pandemic. Manufacturing output and orders have also driven the increase in demand for warehousing space as a consequence of Brexit.
Industrials – Now the biggest sector in the Country (by total Rateable Value)
Under the 2017 Rating List, the Industrial sector lagged behind the Retail and Office, but following the 2023 Revaluation the Industrial Sector is now the largest single property type by total value.
Industrial owners and occupiers fared worse from the Revaluation with average increases in Rateable Value of 32% in distribution and 27% in general industrials in England (15% in distribution and 13% in general Industrials for Wales).
How has the Revaluation affected different regions within England & Wales?
The map illustrates the increases in Rateable Value by area. London and the South-East have seen the biggest increases with parts of Hertfordshire hit with huge average rises of 74% and parts of Inner London 64%.
ForeView Co-Founder Ben Nelson comments:
‘‘The 2023 Revaluation was based on a valuation date of 1 April 2021, at this time the country was mid-pandemic, there was very limited transactional rental evidence for the Valuation Office to use as the country had been in and out of lockdown for the preceding 12 months. This means that your Rateable Value could be calculated on insufficient market evidence and it is recommended for Ratepayers seeing significant increases to take some advice on their Business Rates liability.’’
Some occupiers are yet to feel the full impact of the increases due to a transitional phasing scheme being applied to reduce the increases year on year. This ensures occupiers are not faced with a significant increase at the start of a new Rating list, increases are capped between 5-30% in the first year dependent on Rateable Value, however the steps up thereafter are considerable. The team at ForeView can provide budgetary advice to Ratepayers to plan for these increases.
The year following the Valuation date of 1 April 2021 saw the start of the war in Ukraine which has left lasting scars on the global economy and slowed post pandemic recovery. Rising energy and fuel costs have resulted in challenging economic conditions for businesses. Whilst these factors are of huge concern for businesses currently, the rise in Business Rates will add further pressures when the transitional cap reduces in April 2024.
Which industrial occupiers and owners have been hardest hit?
Of course certain types of industrial property have seen larger increases than others. Unsurprisingly large distribution warehouses have seen the largest increases at an average of over 35% driven by the demand for big box distribution from online retailers, supermarkets and 3PL’s. As expected, more modest increases have been applied to motor vehicle plants but perhaps more surprising is the level of increases applied to other traditional manufacturing and workshop facilities.
ForeView Co-Founder Sam Walters comments:
“It’s a misconception that all businesses occupying industrial property have seen huge revenue growth over the last 5-10 years. There are lots of businesses not in the logistics sector occupying smaller warehouse and workshop facilities that have seen a huge pressure on their costs from all angles and their revenue simply won’t have kept pace. For many of these type of occupiers, they have been shielded from the full impact of the rates revaluation in 2023/24 by transitional phasing but this is a ticking time bomb ready to go off when the 2024/25 rates bills start landing in the spring. Whilst void rates in the sector remain low, many of our property owner clients are hugely concerned about this issue and are working with their customers and the team at ForeView to try and reduce the rates burden”
The ForeView team which combines over 70 years’ specialist experience in Business Rates advisory can provide professional advice on your Business Rates liability. The team has a proven track record using their extensive market knowledge to implement strategies to minimise liabilities for Industrial Owners and Occupiers.
The process to Challenge a Rateable Value can be lengthy and take up to 18 months to conclude by which time the transitional phasing will have reduced. Ratepayers should be pro-active in challenging their liability as in our experience the vast majority of Challenges do run for between 12 and 18 months before savings are unlocked.
The Autumn Statement has the potential to add further pressures to businesses as Government seeks to review the Business Rates Multiplier which is used to calculate Rateable Value and has been frozen since 2020/21 as a consequence of the Covid-19 pandemic. If the Multiplier increases this would lead to significant increase in liabilities for Businesses.
Contact the team for further advice.
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