Industrial business rates have soared, but firms have recourse to challenge their assessments

Every business rate revaluation period creates ‘winners’ and ‘losers’ but the latest, which came into effect on 1st April this year, hit the industrial sector hardest.

When an assessment takes place, it is based on an estimate of the open market rental value of a property on a single date, which is the same for all properties in England and Wales. This year’s revaluation date, known as the Antecedent Valuation Date (AVD), was set at 1st April 2021, an extraordinarily uncertain time for the commercial property market.

Due to the pressures national lockdowns brought to bear on this industry, certain types of property, for instance in the retail or office sectors, have been provided with a variety of support, such as reliefs or valuation downgrades. However, the industrial sector is the only sector where no automatic right to support has been offered.

Primarily this is due to the fact that during the pandemic, industrial property was experiencing unprecedented levels of demand owing to a rapid expansion in ecommerce as consumers stayed at home. During 2020 therefore, more than 50.5 million square feet of additional space was leased in the warehouse sector – 12 million more than the previous record year in 2012, according to property consultancy Savills.

The resultant rise in rents for these properties has meant that large distribution warehouses were stung with the largest hit in the 2023 cycle, an increase in rateable value over 27% according to Altus Group. While in some instances those increases in rates will be fair and justified, it won’t be true in every case.

Understanding your rights to challenge business rates

Every business has the right to appeal their annual business rate assessment. The basis of a challenge is whether the bill is consistent, uniform and fair and this is no different for the industrial sector, despite recent history. Indeed, there are specific avenues of appeal for businesses operating from these properties, and savings to be made.

When rates are calculated by the Valuation Office Agency (VOA), they are based on the building type and the space that is occupied, not the business itself. However, depending on the type of business in operation and its unique circumstances, a rates reduction might be appropriate.

Another fact to consider is that following the pandemic surge businesses have been sloughing what is now excess space, the highest profile case being US ecommerce giant Amazon, which has made tens of thousands of job cuts and reduced its operating facilities by millions of square feet in a bid to cut costs. Like Amazon, many companies may now be finding themselves in that situation, using less space than they occupy.

Avenues of appeal where there is partial occupancy

Of course, if a property is not being used then an empty rates application could be applicable but an appeal is also possible in a scenario where there are partial operations – when, for example, a unit once filled to the rafters with packages is now only a quarter full. A valuation surveyor can assist in this case by liaising with the relevant local authority and VOA for relief on the rate, based on the proportion of the building that is being used. There are also avenues of appeal where a business is phasing operations from one larger building to a smaller one and finding itself paying two sets of business rates.

As valuation surveyors, our job at Altus is to explore the details of a bill, understand if an appeal is appropriate and if so, build a case. We have done this successfully across multinational companies to private industrials, large portfolios to single properties, helping UK businesses reduce their rates bills by over £2 billion across both the 2010 and 2017 rating lists, and well-understand the nuances that may allow businesses to make savings.

We always recommend that acting fast is not the best way forward. With only one opportunity to appeal, the evidence needed to challenge a bill must be solid. For our clients, the first and perhaps only step they need to make towards managing business rates bills is understanding that the bill received in black and white is not a "fait accomplis". Rates can be challenged further, potentially resulting in significant savings at a time when businesses need it the most.

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