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Retailers in London could see business rates jump by 435%

The impending business rates revaluation could see retailers across London facing 435% rise in their rates bill according to new research by property group Savills.

Central London retailers in particular could be facing a significant hike following the revaluation, which is due to come into force from 1 April 2017, as rental movement between 2008 and 2015 in the capital’s prime shopping streets has pushed up valuations significantly since the last valuation cycle in 2010.

While the figures do not take into account any potential rates relief cap, they highlight the challenges facing retailers and other businesses in the capital who will likely face rates rises across the board.

According to Savills’ data, retailers in Mayfair look set to swallow the biggest rate hike, where businesses on Dover Street could see a rise of 435% if no transitional rate relief is applied, although that figure drops to 50% when taking into account rate relief.

Similarly Conduit Street, which is also located in Mayfair, could see a rise of 195% (33% with relief) while Mount Street retailers could be facing a 180% jump (32% with relief).

David Parker, head of rating at Savills, commented that, while business rates rises will likely be phased in gradually, the shape and timing is still to be decided, which leaves businesses in limbo.

He said: “Although any rise in business rates is very likely to be phased in incrementally, the mechanics and timing of the phasing are yet to be formally announced, and hence we don’t know what the cap on any increase will actually be.

“This leaves many retailers in limbo as to how much exactly they can expect to pay. The topline, however, is that in most locations in Central London rates bills are set to soar, with phasing cushioning the initial impact, but not for long.”

Retailers will be able to get an idea of what sort of rates rise they are facing when the Valuation Office Agency publishes its draft findings on 30 September.

Savills also warn that slowing rental growth forecast for the next five years could see rates increases outpacing value gains, as roads around the likes of Covent Garden and Oxford Street, which have enjoyed increases of up to 20% year-on-year, see rental values drop to around 5%.

Commenting on the potential sluggish rental growth in the retail sector, Anthony Selwyn, head of Central London retail at Savills, said: “As London has grown as a visitor destination, tremendous value has been unlocked in recent years so we don’t expect retail rents to rise as quickly over the next five years as they did in the previous five.

“The prospect of significant business rates increases on the horizon will create a cost challenge to some retailers and landlords may find themselves having to allow for a little more flexibility on deals to capture quality tenants.”

Looking ahead, Selwyn said that rates rises may be absorbed by the record numbers of tourists currently descending on the capital, which has been helped in no small part by the weakened pound, but that landlords and tenants should not be complacent.

“Fundamentally, if Central London continues to attract high volumes of tourist spend, the rates change in part will be absorbed. However, it would be wrong for landlords and tenants to not be acutely aware of the changes and look at ways of best protecting their positions,” he concluded.

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