Developers warned over empty rate relief

Apr 2 2008 by Aled Blake, Western Mail

DEVELOPERS in Wales have warned that future schemes could be jeopardised following the scrapping of favourable empty property relief this week.

Developers in a number of sectors, from industrial to the higher quality office developments, have expressed concern at the withdrawal of relief, first introduced almost 30 years ago.

The Welsh Assembly Government has opted to follow the position in England by scrapping relief.

And according to those in the commercial and industrial property sectors, that means developments which have often been a catalyst for jobs creation being put on hold.

The new rules mean that owners of commercial or industrial buildings will no longer receive a reduction in their rates bill if their property is empty for longer than three or six months.

Some properties are likely to retain empty rate relief, including those with a rateable value below £2,200, and listed buildings.

Nigel Roberts, the developer behind a newly-completed £12m grade A office scheme in St Mellons, yesterday warned that similar major speculative projects could be put on hold.

The Linea development, a partnership between Raglan Consultancy and HSBC, is the largest single speculative office scheme in Cardiff and has seen the transformation of a 46,000 sq ft warehouse into a 75,000 sq ft two-storey building.

Mr Roberts said that the abolition of empty property relief, together with new stamp duty regulations, are increasing the burden on developers.

Linea is already attracting potential blue chip tenants and major inward investors with a quoted rent of £15.75 per sq ft.

Mr Roberts said, “When you look at the package of measures from the Government, it seems that property developers are being targeted.

“The credit crunch is also making it more difficult for developers to raise money to do the development in the first place. It is more difficult for developers to raise money and yields have slipped as well.

“You then couple those factors with the Government measures of empty property rates and stamp duty on leases and the messing around with taper relief as well, and you’ve got a fairly depressing picture.”

Mr Roberts said proposed office developments he is backing in Treforest and St Mellons may have to be held up until the market picture becomes clearer.

The start of the exemption period has been set retrospectively – meaning that anyone with a property that has been empty for more than six months for industrial, or three months for all other commercial property, becomes liable to full rates with immediate effect.

Andrew West, a director at property advisers Cooke & Arkwright, was involved in consultations in 2007 with the Welsh Assembly Government on behalf of the Royal Institution of Chartered Surveyors and the CBI.

He said, “The outcome was disappointing as we had lobbied hard.

“The rates liability will be the same in both England and Wales, while Scotland has opted out of the scheme.

“There can be little doubt that the legislation is going to have a negative impact on commercial property and the timing in view of the current economic climate is unfortunate.

“It’s going to prove costly to business and we already have evidence of the additional rate burden stopping speculative development and refurbishment of older buildings. This is a cause of some concern as these developments are a catalyst for job creation.

“Property owners are concerned that the rates will restrict their capacity to upgrade or redevelop empty property in order to attract potential occupiers.

“It can take many years to obtain planning permission and build or carry out refurbishment on obsolete buildings for which no demand exists.

“Keeping a property empty is already costly due to maintenance, service, funding and marketing costs.

“It does not benefit any owner to keep a property empty and some of the increased costs are likely to be passed on to occupiers.”

Research from commercial property agent Lester Smith Hampton found that developers expect speculative development to be put at risk, with town regeneration projects suffering as well.

Garrison Barclay bought the 106,000 sq ft former Burberry factory in Treorchy, which became vacant in April 2007 after production was switched to China.

The vacant premises yesterday became liable to a rate bill of £61,978 per annum.

Tristan Hobbs of Garrison Barclay said, “When we purchased the factory we were acutely aware that no occupier could be found in its original condition, so we developed advance plans to create multiple serviced units within the building.

“During this process Andrew West advised that once completed, not only would we be liable for unoccupied property rate during the marketing period, which we envisaged could take up to two years, but that the type of development would actually increase our rates bill.

“This was a factor which caused us to review the viability of the scheme. The decision was made not to undertake the redevelopment which would otherwise have started, creating employment to the benefit of the local economy.”

Mr West added, “We are providing advice on the potential for clients to minimise their liability, including any potential for legal mitigation with regard to the details of the new legislation.

“It is extremely important to seek professional advice as the government has made it clear that while no anti-avoidance legislation has yet been drafted into the empty rates bill, this is an option in the future.”