Valuation assessment delays set to punish tenants in the City

The business rates you pay for your demise depends on its ‘rateable value’ and this value is calculated by the Valuation Office Agency (VOA), which is a governmental body. The business rates are calculated as a percentage of the rateable value – the multiple at the moment is 43.7 for standard businesses and 43.0 for small businesses in London. Properties are evaluated either by the traditional rental approach, the contractor’s basis or the profits method. 

At the moment, where business rates are based on the rateable value of a property, it is the 2010 values which are being used. However, 2010 is when values were pretty much at their highest. Tenants are therefore paying business rates based on a booming economy and on a higher-valued property. You may find many commercial tenants in today’s industry paying rates that are almost the same price as their rent! With the rateable value being based on out-of-date rents, London has tenants paying extremely high rates in the City– based on high pre-recession rents –  while properties in Clerkenwell, particularly Old Street, have very low rates in comparison to the current rents, because Clerkenwell is one area which has increased in value in terms of office space. 

We have therefore seen a migration in demand from tenants. Offices in Soho are not as much in demand as office space in up-and-coming areas such as Clerkenwell. And offices in the City and offices in Bank are just not being snapped up as quickly as they should be. For example, we have 110 Cannon Street, a high-spec building new to the market that five years ago might well have been snapped up very quickly. 

Christina Weguelin, graduate surveyor at Morgan Pryce, comments, “TMT (telecommunication, media and technology) companies were always traditionally based in Soho and branching out to Noho, but in recent years we have seen the TMT sector develop very quickly within Old Street. I think it is fair to say that the cheaper rates along with initial cheaper rents around the area of Old Street are what did attract new media and technology companies to move there. But now Old Street has been rebranded as the new media location; we have the ‘Silicon Roundabout’ and Google has helped to brand the area with its ‘technology community centre’ office based just off the roundabout. The low rates can be considered as just one factor contributing to the fabrication of this new TMT community in Old Street.”      

Rates are revalued every five years, and business tenants and landlords (in areas such as the City and Bank) have been eagerly awaiting the due rateable value which was anticipated to redress the balance and iron out discrepancies. Unfortunately the Government has planned a postponement of the 2015 business rates revaluation until 2017. This proposal comes under the Growth and Infrastructure Bill.

According to Eugene O’Sullivan, MRICS, director at Morgan Pryce, “The Government is reaping the benefits of [the] increasing [the] transition in business rates from the 2010 evaluation as these business rates were assessed on 2008 rents (at the height of the commercial office market). Now the Government is intending to delay the next evaluation, which is a joke as it knows that a revaluation will, for the majority, halve the business rates based on new rental values.”

Morgan Pryce is a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation, and project management and works exclusively for the tenant.