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Business rates in central London are set to increase by as much as 90 per cent next April, heaping more misery on cash-strapped tenants, and creating worrying repercussions for London landlords, who are now liable to pay full rates on empty buildings.
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A report from property consultancy CB Richard Ellis predicts that this autumn's rating revaluation will increase business rates by as much as 90 per cent in Mayfair, and 70 per cent in other prime West End office and retail locations. For the five-year period from April 2010, annual charges could be as high as £45 per square foot for commercial buildings - that's more than it currently costs to rent an office in the City of London.
The unprecedented increase results from a two-year time lag in the system the government's Valuation Office uses to calculate bills. It is basing the increases on the market's rental growth between 2003-2008, a period when West End rents doubled and hedge funds were paying up to £120 a square foot for sumptuous office suites.
But, since the start of 2008, market rents have plummeted by as much as 50 per cent and the level of vacant space has risen.
"This is a really big issue and will have a profound effect on the market, hitting landlords and tenants alike," says Stewart Smith, executive director of CBRE's central London team. "Rateable values will be massively out of kilter, and now that landlords are liable to pay full business rates on empty properties, I am not certain they have grasped the potential impact on cash flows."
The West End will be hardest hit by the increases, but other areas of central London will also see rate rises of 15 to 20 per cent.
"The current government has made it very clear - they are not going to amend the empty rates legislation," says Andy Teacher, spokesman for the British Property Federation which has led an industry-wide campaign on behalf of landlords.
"In a recession, there are more empty properties, and with rates going up to such an extent the government is going to hoop it in."
The added cost of giant rates bills on vacant London properties will not please London-biased Real Estate Investment Trusts like Land Securities, British Land or Great Portland, but the bigger concern is pressure on rental values, as private landlords take a hit just to get buildings let.
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-IC-2.1.3g-prod - 17/03/2010 18:13:09 - ben.wheeler
