Friday, 16 May 2008

More shops in jeopardy? Consequences of charging rates on empty properties.

I have recently completed some research in a town centre that is a major shopping destination and have been hit by the number of empty shops on the periphery of the core retail area. It was clear that they had not all become vacant for the same reasons - town centres are complex organisms so that was reasonable; but they are all now subject to the new regulations and are therefore subject to national non-domestic rates, which are now payable even if the property is empty.

I have to wonder if the introduction of this measure will be yet another with unintended consequences for the government, especially given the unfortunate timing with the retail downturn associated with the global credit crunch and its knock-on effects.

The purpose of the change in the regulations was clearly to force landlords to make their properties available to rent, presumably expecting market forces to set prices that would attract tenants even in the most unglamourous of locations. This may well have been true before the onset on this latest cyclical downturn but the current market is seeing reductions in retail space and less capital available from traditional lending sources for new businesses. It must, therefore, be reasonable to anticipate that the landlords with spare capacity will simply not be able to let because of a lack of potential tenants. This must then present the landlords, particularly those in peripheral areas, with a dilemma - do they stoically march on in an exceptionally unpredictable market and be saddled with ever rising business rates to pay, or do they sell?

If these properties are sold, it is likely that they will be to developers, and these developers are unlikely to develop retail. Consequently we will see the further retraction of traditional retail areas and the potential for more food deserts in areas of urban deprivation. I think it is time for HM Treasury and the planners at central and local government levels to appreciate that the ideas intended by this measure simply will not be realised in the current economic climate, and it is more likely that they will promote long-term consequences of reducing space for new business for when the up-turn begins.

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