Empty rates could cause long term instability to commercial property markets

Published 27th Apr 2009

RICS and LSH Empty Property Rates (EPR) Survey

Empty Property Rates (EPR) are paving the way for future instability in non-residential property markets as property owners are increasingly turning to demolition to avoid paying the rates whilst cutting back on future investment, according to the results of RICS and Lambert Smith Hampton’s Empty Property Rates Survey, published today (Tuesday 21st April 2009).

The Empty Property Rates Survey, the first industry review of the tax following its controversial introduction a year ago, demonstrates that Empty Property Rates are exacerbating the financial difficulties of many property companies and occupiers, with an overwhelming 93 percent of respondents in agreement that this was the case.

This has led to an increase in the demolition of perfectly sound properties, with 75 percent of respondents agreeing that there had been an increase in the demolition of properties and 85 percent believing this was to avoid paying the rates.

In addition all sectors saw a decrease in investment of new properties, with the industrial sector being the hardest hit, and 79 percent believed that empty rates are having a detrimental effect on town regeneration and speculative development.

Consequently there is likely to be shortage of available commercial property once the economy turns around.

EPR will also have a significant negative impact on the ability of central and local government agencies to pursue property-led urban regeneration.

The problem of demolition is set to get worse over the coming months, as the results indicate that owners are tending to wait around 12 months before considering demolition of empty stock, meaning we should expect to see a sharper rise in occupiers resorting to knocking down empty buildings over the coming months.

Gillian Charlesworth, Director of External Affairs at RICS, comments:

“Although the Government’s motives for reducing EPR relief were well intentioned when initially introduced, it is clear that the recession has led to these rates having the opposite effect and causing more damage to a sector that is already suffering.

"This survey has finally produced the evidence-based facts to support the need for changes to be made to this hugely unpopular tax.

"On the basis of these findings, we have urged the Government to give serious consideration to increasing the EPR relief to 12 or even 18 months before full business rates across all non domestic properties become payable, or to remove, or significantly reduce, empty property rates across all non domestic property, in full consultation with the industry."



Background:

From 1 April 2008, empty property rate relief was restricted for almost all commercial property. There is no liability for the first three months after it becomes vacant. This is extended to six months for empty industrial and warehouse property. Following these periods rates are charged at 100 percent. Previously empty rates were not payable on industrial and storage properties and whilst all other property paid 50 percent of the occupied rate after three months.

Source: ' RICS '

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