Retailers are abandoning prime locations in London and the south of England as they brace for the business rates revaluation to hit in April, property sources have told Drapers.
Concerns are rising about the impact on London in particular, where rates are expected to rise by 14% on average in 2017.
“There is now quite a lot of choice [of available stores] in decent places on major shopping streets such as Oxford Street and we’re finding resistance from retailers given the upcoming rates revaluation,” one source told Drapers.
“Recently I’ve had one high street multiple put off looking for a third central London store altogether, while another prime store that is being offered at almost a third less rent than its recently departed tenant is not getting much traction because the business rates will be so high that the figures just don’t stack up.”
Jonathan De Mello, head of retail consultancy at property firm Harper Denis Hobbs, said: “There are more vacancies than normal as some retailers are having a tough time, they aren’t performing as well as they were … The business rates revaluation is coming up and hedging effects have hit retailers hard.”
De Mello added that there were deals to be done with landlords, which can offer rent-free periods or incentives on fit-outs, but warned that more vacancies and administrations could follow.
The concerns come as research suggests small and medium-sized stores will be hit harder by the revaluation than online players with out-of-town warehouses.
Business rent and rates specialist CVS estimates small stores will face an 8.4% increase. Meanwhile, the rates bill for the out-of-town warehouses could fall or stay the same.
The CVS analysis shows that Amazon’s nine distribution centres will benefit from a reduction in property tax liabilities this year, while Boohoo’s distribution centre in Burnley will have its bill reduced by 13%. Asos’s distribution centre in Barnsley will have no change in its rateable value, CVS said.
The average store in England and Wales faces an increase of 8.5% from April, but locations face a steeper rise. In London, a typical store will face a rise. But in some areas it will be higher: for example, businesses in Southwark and Tower Hamlets will be hit with 56% increases.
“April will serve a ‘hammer blow’ to small shops, and the consideration should now be to ensure that they are in fact paying fair and accurate rates,” said CVS chief executive Mark Rigby. “It will also be interesting to see how bricks-and-mortar shops will compete with agile, online retailers, which aren’t battling against exorbitant rent and rates bills for the next five years.”
The business rates revaluation usually take place every five years. However, the most recent revaluation was delayed by two years, so current rates came into effect in England and Wales on 1 April 2010 and are based on rateable values from 1 April 2008.