Business rates an increasing burden on businesses compared to rent

Business rates are a growing burden on businesses as compared to the rent charged by UK landlords, according to a report released today by the Property Industry Alliance.

The Property Data Report 2015 has revealed that rental values, on the whole, have increased at a much slower rate than other business costs over the last 10 years, rising much more slowly than business rates and the rate of retail price inflation (3.1%).

The retail sector has seen the slowest growth of rental values at 0.2% per annum, compared to a 3.9% increase in business rate over the past decade. Rents in the office sector have seen an average increase of 1.8%, compared to a 3% business rates increase.

Other findings in the report include the fact that overseas investors now own a quarter of invested UK commercial property, worth £113bn. This makes them the largest owners of UK commercial property that is invested for the second year in a row, having increased their presence in the market by 129% over the past decade.

In comparison, UK institutions now own £85bn commercial investment property, representing just under a fifth of total investment. This is an 8% decline since 2004.

The report shows that the total value of UK commercial property rose to £787bn in 2014, a 15% increase from the previous year. In 2014 the industry directly contributed about £63bn to the economy, representing 3.9% of Gross Value Added. Occupiers of commercial property paid over £20bn in business rates in 2014.

The sector employs nearly a million people – about one in every 35 jobs – and contributes almost £15bn in direct taxes to the Exchequer.

Out of total UK commercial stock, the largest sector by value last year was retail, worth £340bn. This is followed by offices, worth £234bn, and industrial, worth £148bn. Other commercial property, including hotels and leisure, was valued at £65bn.

Sir Robert Finch, Chairman of the Property Industry Alliance, said: “Commercial property is an integral part of the UK’s economy contributing a comparable amount to the economy as the telecommunications and transport industries combined.  Commercial property provides the UK’s urban and commercial infrastructure and it is encouraging to see that the sector continues to grow and that it is attractive to both overseas and domestic investors.

“It is interesting to see that the value of business rates has significantly increased over the past decade, considerably outstripping the value of rental increases. This is particularly prevalent in the retail sector, where business rates have also grown by far more than the rise in sales turnover recorded in retail property.” 

The Property Industry Alliance is formed of nine leading property bodies that tackle major property issues in a more coordinated way while retaining their separate identities and roles. Members include:

• Association of Real Estate Funds (AREF);
• British Council for Offices (BCO);
• British Council of Shopping Centres (BCSC);
• British Property Federation (BPF);
• Commercial Real Estate Finance Council Europe (CREFC Europe);
• Investment Property Forum (IPF);
• Investment Association (IA);
• Royal Institution of Chartered Surveyors (RICS);
• Urban Land Institute (ULI).

The full Property Data Report 2015 can be found on the Property Industry Alliance website.