Business rates bills for prime industrial/logistics property expected to soar in the next revaluation

Occupiers of industrial and logistics properties will see significant rises in their business rates bills following the next revaluation in 2023, particularly for prime assets in London and the South East (and in the South West) according to latest forecasts by Colliers Business Rates Team.

Colliers estimate that business rates bills in London for prime industrial and logistics space will increase on average by 50.2% following the next revaluation, with the South West of England seeing rises of 32.5% and the South East 30.6%. For all industrial/logistic space, rates bills will increase by 35.6% higher in London, 25.7% in the South East and 16% in the South West.

These rises mean a prime industrial or logistic unit in London, with a current rateable value (RV) of around £500,000 will find its rates bill rise from £266,000 a year to £399,630 a year, following the revaluation. An owner of a prime property with a current RV of £1million will find a rates bill rise from £532,000 a year to £799,260 a year – a significant hike, particularly for those with a portfolio of properties they are renting in the sector.

Putting this into perspective, Colliers estimates that Amazon’s biggest distribution centre in Tilbury which currently pays an annual rates bill of around £3.625 million will see its annual bill rise to £4.745 million following the revaluation, based on Colliers assumptions – a year on year increase of 30.9%. And that’s just one building in its portfolio.

These rises are due to the sustained rental growth for industrial and logistical property between the last time the VOA revalued property for business rates in April 2017, when rates were based on market rental levels of 1 April 2015 and the current valuation which will be based on rental levels of April 1st, 2021.

Since 2015 demand for warehousing has surged as consumer demand has shifted to online good and services, a trend further accelerated by the Covid-19 pandemic. Companies have sought to realign and streamline their supply chains and to buy and develop distribution hubs nearer to consumers. These factors coupled with a constrained supply pipeline has resulted in unprecedented rental growth for industrial and logistics space across the UK. Colliers’ research reveals that rents for prime industrial and logistic properties have increased across England by 29.9% between the Rating Revaluation dates of April 2015 and April 2021, with London witnessing the largest rental increases at 54.3%, although all regions have experienced robust rental growth in the period. (See table below).

With the VOA basing their valuations on April 21st market rental values, prime industrial assets across every region are therefore facing significant increases in their rates valuations come April 2023.

And whilst the prime sector has seen the most prominent growth, as MSCI average industrial and logistics index shows, rents across England and Wales have cumulatively increased by 21.8% over the period, so all industrial stock, not just prime is vulnerable to significant business rates increases from April 2023.

To quote John Webber, Head of Business Rates at Colliers, “As a result of the significant rental growth witnessed across the industrial & logistic sector, Colliers is forecasting an average increase of 18.7% on rates payable from April 2023”.

He continued, “For those occupying a large number of properties in the sector, such as Amazon or even retailers such as Next or John Lewis, these rises will mount up, particularly for operators who have prime sites in London and the South East and those in the South West. This will have a significant impact on their overheads from 2023 onwards. We are advising our clients to fully understand the likely impact of the 2023 business rates revaluation and to prepare now to avoid any unexpected cost increases.”

Average Rental Growth Industrial and Logistics Sector -Q1 2015 v Q1 2021