Logistics set to become most valuable property sector as retail drops to third in 2023 business rates revaluation

Following detailed research, Avison Young is forecasting that the 2023 revaluation of business rates will deliver the long-awaited rebalancing of the tax base to the benefit of traditional retail, but at a cost for the logistics and industrial sector.

Nationally the retail sector, which was comfortably the most dominant sector in the 2017 revaluation at £21.5bn, is now forecast to drop to third, having dropped in value by 26% to £15.9bn, saving the sector £8.5bn over three years. Logistics and industrial takes the top spot, having increased its total rateable value pool from £14.6bn to close to £17.9bn. Offices remain broadly static moving from £15.5bn to just over £16bn.

Wales is expected to see its rateable value pool fall 6.6% from £2.53 billion in the 2017 list to £2.36 billion in the 2023 list, with trends in Wales broadly mirroring those in England. The strongest growth is in the industrial/logistics sector (+13%), followed by offices (+9%) and in contrast, the retail sector has plummeted, falling around 29%.

However, the impact on the Welsh UBR is more evident due to the much smaller representation of the relatively well-performing office sector (15%) in the total rateable value pool. Retail on the other hand performed poorly and we estimate will move from 36% of the Welsh 2017 rateable value pool to just 26% in the 2023 revaluation. As a result, Avison Young predicts the UBR for Wales will increase quite starkly from 54.6p in 2022/23 to around 58.7p at the start of the new rating list.

These calculations are based on the Welsh Government applying an inflationary increase to calculate the 22/23 UBR. In line with our lobbying in England, Avison Young have again proposed no inflationary increase to the 22/23 UBR, maintaining a level of 53.5p. This would have a knock-on effect to the 2023 UBR reducing it from our prediction of 58.7p to 57.5p.

Whilst the growth in logistics has undoubtedly been a key driver, there are some other notable high performing areas including prime offices in Cardiff where we forecast that their annual liability will increase by 22.2% compared to the penultimate year of the 2017 revaluation.

Key findings from the report include:

  • Avison Young is predicting that the total Rateable Value (RV) pool in Wales will fall 6.6% from £2.53 billion in 2017, to £2.36 billion in 2023, compared to England with a fall of 1.2%
  • Consequently, the Welsh UBR is expected to rise from 54.6p (2022/23) to 58.7p at the start of the new rating list, with England expected to rise from 50.9p to 51.7p at the start of the new rating list.
  • The industrial/logistics rateable value pool in England & Wales could rise by as much as £3.3 billion in the new rating list. This would result in the rates liability for the sector increasing by £1.86 billion in 2023/24, up 25% from the previous year.
  • Retail in Wales will see dramatic falls in rateable values, with rateable values predicted to fall by 29% between the 2017 and 2023 rating lists, with retail warehousing showing the largest fall of any sub-sector.
  • Overall, despite certain hot spots, the office sector in Wales is showing growth of 9% between the two revaluations, compared to an average predicted growth in England of 4.3%. Growth was strong until the end of 2019; however, this has fallen back as a consequence of the Covid-19 pandemic.

Leigh Richardson, Principal, Business Rates, Avison Young, said: “The 2023 rating revaluation will result in a significant rebalancing of the tax take, mirroring the state of the economy. However, it is certainly a concern for Wales that our research suggests that the Uniform Business Rate is going to face a significant increase, that will be detrimental to everyone.

“What is clear is that the 2023 rating revaluation cannot come fast enough for the traditional retail sector. Increasingly over the last six years, the tax has changed from simply being a challenging cost across the retail sector to a significant burden, which in so many cases has become increasingly disproportionate against a backdrop of diminishing margins.

“Even with a 2023 revaluation, traditional retail will continue to pay the highest proportion of business rates to total overheads. The Government has to put a break on the tax, and we continue to advocate a reduction in the UBR through freezing business rates at 45p and tying in future business rates growth to rental growth, rather than inflation.”