27/04/2016 Business Rates Update / Revaluation 2017 Andrew - PDF document

27/04/2016 Business Rates Update / Revaluation 2017 Andrew Hetherton Director, GL Hearn – Head of Business Rates Past President of the Rating Surveyors’ Association IRRV Council Member – Chairman of the IRRV Valuers’ Association Accessible Retail, Board Director PMA Annual Conference glhearn.com glhearn.com Agenda • Revaluation 2017 overview of possible outcomes ‒ Where are we now ‒ Next Steps • Digital Communication / E Comms • Government Legislation ‒ Enterprise Act ‒ Devolution / Business Rates Retention • Transitional Relief • Strategic Review • Conclusions s Revaluation Timetable 1

27/04/2016 Revaluation Timetable 4 Revaluation Timetable Indicative multiplier based on September RPI (until 2020) Transitional Relief Scheme confirmed ? 5 Current Status of the Revaluation Project • Peak year of activity for the VOA ‒ Staff diverted from case settlement to revaluation ‒ Recruitment from “all walks of life” ! • Revaluation Progress to end of April 2016 ‒ 90% of valuations complete (expect 95% within two weeks) ‒ 80% of validations complete • Publication ‒ Expect Draft List figures to be available on line ‒ Call centres being set up but hope online service available too ‒ Details of valuation schemes and approach will be published • Decapitalisation Rates ‒ Announced yesterday confirming a change to the rate to be applied 2

27/04/2016 Current Status of the Casework Official Statistics will be published 12 th May 2016 • • Remember the Chancellors Target ? ‒ Clear 95% of all pre September 2013 cases by July 2015 ‒ 94.1% cleared ‒ Circa 97% now cleared but “hardcore” cases still remain • Discussion Periods ‒ Until up to 10 days prior to the hearing VOA will seek to continue discussions where possible ‒ No indication that this will not continue for the time being ‒ Position will clearly be different for 2017 Revaluation • Principal Activity ‒ Preparation for the 2017 Revaluation ‒ Revaluation remains the focus until May 2016 Business Rates Stakes Global Recovery – Market Stabilisation Source: 3

27/04/2016 Improving UK Performance Returns Source: Rental Performance across sectors RENTAL GROWTH RANKINGS, 2014 % YEAR-ON-YEAR LONDON OFFICE RENTAL VALUE GROWTH, % YEAR-ON-YEAR Supermarket 10% Std Office -1% Std Industrial -4% Distribution Warehouse -5% Office Park -5% Retail Warehouse -6% Std Shop -8% Dept / Variety Store -8% Other Retail -10% Shopping Centre -13% -15%-10% -5% 0% 5% 10% Source: Performance Trends – All Property – UK Centres 2008-15 RENTAL VALUE CHANGE 2008-15, % West End 31% City & Mid Town 19% Rest of London -5% South East -8% North East -8% East Midlands Scotland -11% Eastern North West -12% West Midlands Yorks & Humber South West Wales -16% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% Source: 4

27/04/2016 Inflation • Overall amount of business rates levied has increased yearly in line with RPI inflation until recently ‒ RPI is the current indicator and the maximum allowed by legislation, a lower rate can be adopted ‒ CPI or an average might be a better indicator ‒ RPI September 2015 at 0.8% but….. what will it be in September 2016 ready for 2017? Current CPI 0.5% (March 16) BoE Overview of Inflation No 2014 Estimated Multiplier for Business Rates 2017/18 Legislation currently prevents an overall increase in rate liability because of a Revaluation � So if RV’s increase by 20% then UBR should come down by 20% � But UBR will increase by RPI inflation unless Ministers adopt a lower rate � Assume that the Government will allow for losses on appeal based on 2% � Assumptions for inflation at 2% � Country Size 2015/6 2016/7 2017/8 England Small 48.0p 48.4p 53.1p Large 49.3p 49.7p 54.4p Scotland Small 48.0p 48.4p 53.1p Large 49.3p 51.0p 55.7p Wales 58.0p All 48.2p 48.6p Source: GL Hearn in association with MSCI 14 Effective Rental Growth and Rate Liability Change by Sector 5

27/04/2016 Change in Rate Liability 2015/16 to 2017/18 by Region - all property classes Actual Change in Rate Bills 2008 to 2017 2.0% =>10% Increase 5.0% - 9.9% Increase 0% - 4.9 % Increase 0% -2.0% 0% - 4.9% Decrease 0.0% >5% Decrease 2.0% 18.0% 4.0% -1.0% -6.1% 5% 5% 5% 5% 5% 5.0% -1.0% Source GLH/ MSCI May 2015 Regional Change in Office Rates Liability Actual Change in Rate Bills 2015/16 to 2017/18 =>20% increase -3.0% 10.1% - 19.9% increase 5% - 10% Increase 0% - 4.9% Increase 2.0% 0% -2.0% 0% - 4.9% Decrease >5% Decrease 3.0% Outer London +12.3% 10.0% Inner London +26.5% -9.0% City +10.2% West End 12.8% -1.0% Mid Town 20.1% 4.0% -4.0% 15.0% Source GLH/MSCI May 2015 Impact on the Office Sector • Offices having seen slightly stronger than average rental growth • Office sector was first to see some return to rental growth after the market crash • An extremely strong London performance • On average 9% increase across England • Noticeable the difference between London / South East and the rest of England • This sector sees some of the largest increases in rates burden • But also some decreases in liability • Significant variations between locations ‒ Central and Inner London average 16% increase ‒ Rest of London average 12% increase ‒ Inner South East average 6% increase • Offices in West Midlands may benefit most • Increases in major regional centres will be less than in Central London 6

27/04/2016 Regional Change in All Retail Rate Liabilities Actual Change in Rate Bills 2015/16 to 2017/18 4.0% =>10% Increase 5.0% - 9.9% Increase 0% - 4.9% Increase -1.0% 0% -3.0% 0% - 4.9% Decrease =<5% Decrease -1.0% -1.0% -2.0% 26.0% -0.8% 3.0% -2.0% Source GLH/ MSCI May 2015 Impact on the Retail Sector • In the retail sector rents fall on average by 7.5% • Rates liability on average increases by 2% but marked differences occur • Highest regional increase London with an average increase of 26% • There remain marked differences however even within London • Major impact on Central London values ‒ Central London increase on average over 50% increase ‒ West End sees increases as high as 60-70% ‒ After that the South East at over 19% • More local variation within regions than for other sectors • Smallest increases generally in Yorkshire and Humberside and North West • Out of Town retail should be looked at separately Regional Change in Shopping Centre Rate Liabilities Actual Change in Rate Bills 2015/16 to 2017/18 Nil >10% Increase 5% - 10% Increase 0% - 4.9% Increase -4.1% 0% 1.2% 0% - -4.9%% Decrease >5% Decrease -0.1% -9.3% -6.4% Nil -14.5% 1.4% -0.8% -7.7% Source GLH/ MSCI May 2015 7

27/04/2016 Regional Change in Retail Warehouse Rate Liabilities Actual Change in Rate Bills 2015/16 to 2017/18 9.9% 9.9% >10% Increase 5% - 10% Increase -0.5% 0% - 4.9 % Increase 0% -1.3% 0% - 4.9% Decrease 5% - 10% Decrease 5.9% 4.4% 5.3% 3.0% -6.0% 4.8% 3.3% Source GLH/ MSCI May 2015 Impact on the Retail Warehouse Sector • There have been a number of significant changes in this sector • “Second-hand” supply has fuelled growth of a number of expanding retailers. • A high number of administrations • Amount of vacant retail warehouse space is at a 5-year low • Larger units have been split and a number of bulky goods parks converted to shopping parks • With some falls in rateable value, but at a level less than the average, rate liabilities still set to increase in 7 out of 9 English regions • Older parks, could see larger reductions but, as ever, the problem is proving the current open market rental value with a scarcity of evidence especially for large bulky goods / DIY sites. Regional Change in Industrial Rate Liabilities Actual Change in Rate Bills 2015/16 to 2017/18 2.0% =>10% Increase 5% - 9.9% Increase 0% - 4.9% Increase 0% 0.0% -1.0% 0% - 4.9% Decrease =>5% Decrease 5.0% 5.0% 5.0% 11.0% 4.1% 6.0% 1.0% Source GLH/ MSCI May 2015 8