After Retailers Demand Rent Reductions are Business Rates the Next Target? Asks Colliers

Property Advisers Question Next Move of Retail Chains in Market Turmoil.


News this week that Primark is among a small group of stronger retailers bargaining with landlords for a 30% rent cut on dozens of stores, in an effort to close the gap with struggling rivals, has begged the question- where now? - from business rates specialists at Colliers International, who fear business rates liabilities might be next on the target list.

In the year of the CVA, several struggling retailers have used insolvency procedures to reduce liabilities. In the last few months Sir Phillip Green’s Arcadia, Debenhams and Monsoon Accessorize all used the CVA process to close stores and slash rents, putting them at an unfair advantage to other retail chains.

And in two CVAs they requested, and were allowed, business rates holidays. Colliers estimated that through the Arcadia and Debenhams' CVAs alone, more than £30 million of business rates, that should have been paid to local authority creditors, have been written off. 

“The traditional landlord and tenant market seems to have been turned on its head at the moment." says John Webber Head of Business Rates at Colliers International, “Not only are retailers achieving rent reductions when they are renewing their leases, but the fact that some like Primark are demanding cuts before lease expiries underlines the pressure facing landlords. According to press reports Ann Summers and Schuh are said to be pressing for immediate reductions too.”

“I can’t see this stopping at rents. As business rates bills have risen to become a 50p tax on businesses occupying property and are increasingly unaffordable, rates will surely be the next in the firing line.”

Webber continued, “Last week Mike Ashley said a number of his House of Fraser stores were not profitable, even where the rent had dropped to zero. Given business rates are one of the key costs, it does not take too much imagination to see local authority being asked or given an ultimatum whether they are prepared to take reduced business rates liabilities from some stores in order to keep stores open and workers in jobs in some areas.”

Last year nearly 150,000 jobs were lost in the retail sector and 20,000 outlets were closed


The picture for 2019 so far has not been any rosier and local authorities are worried about the impact this has their local communities. However, any loss of rates receipts does puts extra pressure on the public purse.

 “This is why we have been campaigning for business rates reform “adds Webber. “Unless this iniquitous system is properly reformed and the 50% tax take reduced to something more viable, retailers will continue to get into trouble financially and the knock-on impact for landlords, pension fund holders and local authorities are huge, as we are now seeing.”

Primark now seems to be taking the lead on rental reductions. Colliers has estimated it pays a rates bill of £72 million on its 189 UK stores and has some with very high bills- the Oxford Street Primark, for example, pays business rates of £3.327 million a year. 

Whether rates follow rents as the next negotiating tool on the table, is certainly not out of the question.


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John Webber

Head of Rating

Birmingham

I have over 30 years’ experience in the rating industry and lead a 90 plus rating team at Colliers International.  When I took over responsibility for the team in 2005, it consisted of only a dozen people and has now grown into one of the leading rating advisory teams in the country.  I am a member of Colliers International Management Executive as well as sitting on the company’s promotion panel. 

I am regularly called upon by the national media to give my views on a range of business rates issues and I am vocal commentator on the 2017 Revaluation.

I started my career in the Valuation Office Agency in Kidderminster.  I joined Gerald Eve in 2000 where I spent 10 years before moving to Gooch Webster (now Colliers International). I sit on the National Retail Panel of Rating Surveyors Association which provides guidance on how the RSA town committees work with the VOA and valuation matters.  John sits on the RICS Rating Diploma Committee having passed the prestigious qualification in 2014.

Philip Harrison and I founded 'Accurates' in 2007, the Collier's Compliance and Audit team, which although forms an integral part of the Rating Team is now a leading brand in its own right.

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