Will business rate cuts boost high street development?

As well as capping overall business rate rises at 2% for 2014-15 and extending the small business rate relief, the Autumn Statement featured two announcements aimed specifically at the high street which could have a knock-on effect for the construction industry.

Businesses with retail or leisure premises (including pubs and restaurants) with a rateable value of up to £50,000 will receive up to £1,000 off business rate bills, Chancellor George Osborne announced on 5 December.

In addition, a temporary reoccupation relief was introduced, which grants an 18-month 50% discount from business rates for new occupants of previously empty retail premises. The reoccupation discount is expected to encourage the establishment of new retail businesses, as well as adding an incentive for existing retailers to relocate to better premises. 

Glenigan economist Tom Crane hopes the new business rate rules will boost retail development, but warns they may not be widely implemented by local authorities.

 “We hope these change will lead to further upturns in shop refurbishment and fit out work,” he said. 

“The 22% rise in the value of retail project starts during the six months to November tracked by Glenigan has been driven by refurbishment and improvement work on existing premises, with new build work remaining flat.”

Tom added: “However it appears that both the £1,000 discount and temporary reoccupation will be introduced at local councils’ discretion, and therefore there is some doubt over their introduction. Council discretion to reduce business rates under the Localism Act 2011 has been hardly used.

“And even if these measures do take effect and deliver a welcome boost to retailers, there will still be a bigger problem facing many UK high streets; changes to the way we shop have caused a structural oversupply of town centre retail space.”

Too many shops?

This oversupply is in part due to forces that are now receding. The planning system now discourages out of town shopping centres and the public appear to be voting with their feet too, with the 16% vacancy rate in out of town shopping centres now greater than the overall national average of 14%. Supermarkets have also refocused their strategy from large out of town stores to convenience on the high street.

However, the threat to the high street from online retail only continues to gather pace.

Tom said:  “Logistics has been one of the fastest growing sources of construction work in recent years; during the first nine months of this year we saw a 67% rise in new distribution depot starts on site and over a doubling in the value of detailed planning approvals.”

He added: “Campaigners have argued that business rates impose an unfair advantage on bricks and mortar retailers, as shops tend to have higher rateable values than distribution centres and warehouses located on cheaper land. 

“But the government should not use the business rate system to subsidise shops or punish more efficient online retailers. Though click and collect will be an added incentive for retailers to maintain their high street presence, we may have to accept that further stores will suffer the fate of Jessops, Blockbuster and HMV and lose to online rivals.”

When is a decline not a decline?

Despite the problems facing our traditional high streets, the future can be bright. The Grimsey Review into the future of the high street, published by retail veteran Bill Grimsey in September, recommended that we “accept that there is already too much retail space in the UK and that bricks and mortar retailing can no longer be the anchor to create thriving high streets and town centres”.

This acceptance may already be underway; change of use legislation is currently under consultation to allow permitted development rights to turn vacant retail space to residential use. 

Tom said: “This is likely to have a more significant impact on the face of our high streets than nips and tucks to the business rate system.

“If successful, town centre residential development could breathe life back into abandoned streets, and be a step towards wider mixed use redevelopment of town centres.”

He added: “Nearby leisure, commercial, amenities and residential space will bring footfall and help retailers. But so will lower business rates, so that’s a start.”

For a sector-by-sector breakdown of Glenigan's industry forecast for the next 12 months, download the Construction Prospects for 2014 report.

What do you think of the government’s overhaul of the business rates system? Do you think it will help boost new build work in the retail sector? Get involved with the debate on Glenigan’s Twitter page (@Glenigan) or the Construction Project Intelligence group on LinkedIn.

PR contacts:

Kirsty Maclagan (Marketing and Communications Manager)

T: +44 (0)1202 786 842│E: kirsty.maclagan@glenigan-old.thrv.uk

Tom Crane (Economist)

T: +44 (0)207 715 6297 | E: tom.crane@glenigan-old.thrv.uk