A revaluation reflecting the post Covid-19 economy must be the right thing to do – Alex Probyn
Capco have said that the value of its Covent Garden estate of which retail, leisure and hospitality represents 75% of its overall portfolio value had fallen by 17% during the first half of 2020.
Whilst retail sales in June returned to near pre-lockdown levels, online spending accounted for 31.8% of that spend. Online sales continue to heap further pressure on physical stores given pre-pandemic spending was around 20%.
With retail, leisure and hospitality businesses having to shut sites in March with the enforced Covid-19 national lockdown, the ability of tenants to pay rent was severely impacted. The owners of Westfield reported a 14.2% decline in global rent income in the first half of the year.
Now with lower footfall, fragile consumer sentiment, higher online spending and financial restructuring taking place through CVAs and Administrations, rents continue to come under pressure with The Royal Institute of Chartered Surveyors warning rents are set to plunge across the office and retail sectors in the short term.
Against this backdrop, to my mind, it would seem far more beneficial to tie rateable values, under the next revaluation of business rates, to emerging post Covid-19 rents. That way that the impact of the economic circumstances of the pandemic will be clearer and businesses will have had a longer time to recover.
The decision by Government to extend the rating cycle by an additional year has, inevitably, provoked a range of strong reactions from ratepayers and their representatives, but it is the basis upon which properties will be valued moving forward that is more important.
A revaluation, originally scheduled for 2022 but based upon open market rents in April 2019, a full year before the pandemic took hold, would have been very painful for so many businesses in the wake of such hardship.
Future business rates liabilities assessed from pre Covid-19 levels would have taken no account of the devastating effects of the last six months, bearing no resemblance to the current reality at the point to which they became payable. It would have been incomprehensible to expect businesses to tolerate a new rating cycle that simply excluded the effects of something so significant as Covid-19.
There was never going to be a perfect solution but we worked hard with the major trade bodies across the retail, leisure and hospitality sectors, as well as some of country’s largest employers, to devise a roadmap aimed at attempting to deliver the next revaluation in 2022, but based upon post Covid-19 emerging rents.
I had hoped this would have been possible, however, the Government’s preference was to maintain the two-year lag between the valuation date and effective date on the assumption that they need to ensure the Valuation Office Agency had sufficient time to gather relevant evidence, and to produce consistent valuations. This decision means there is now an urgent need for more focus on delivering further immediate assistance.
Whilst extending the rating cycle by an additional year is open to criticism, there is a near time solution that must now be accelerated. The impacts of Covid-19 are already obvious and as a result of this material change in circumstances arising from national restrictive measures introduced to counter the Covid-19 pandemic, bona fide grounds now exist to support a significant, substantial and prolonged reduction to inaccurate and excessive rateable values from which bills are calculated.
With Covid-19 having now been accepted in principle as a qualifying material change in circumstances, many ratepayer’s tax liabilities must now be reduced, upon appeal, potentially upto and including 2023. This would provide a quick, meaningful impact for struggling ratepayers and go some way in offsetting the delay caused by the additional 6th year.
These appeals are particularly time sensitive for those within sectors of the economy such as offices, factories and industrials currently not in receipt of the enhanced retail discount which provides a business rates holiday.
An important opportunity exists to quickly reflect the effects the pandemic within this tax base as the physical changes are so fundamental, uniform and wide ranging in terms of impact.
Alex Probyn is UK President of Expert Services at the real estate adviser, Altus Group