UK REITs have underestimated the long-term effect of next year’s business rates review on rental growth, according to Green Street Advisors.
Business rates are set to hit around 50% of rental value in April 2017, with Workspace, Derwent London and Great Portland Estates’ portfolios seeing the biggest tax rises.
Because the tax is calculated from a property’s rental value, portfolios that have reported the most rental growth since the last review in 2010 will take the sharpest hits.
Assets in the regions, where rents have stayed flat or fallen, will see a reduction in rates.
Hemant Kotak, managing director of UK research at Green Street, said that if London tenants are in danger of not making a profit after their new rates come into effect, the result could be more vacancies and downward pressure on rents.
He added that firms such as Capital & Counties or Shaftesbury with a large number of retail tenants could be in more danger of seeing its rental growth stall than office-orientated REITs such as Workspace or GPE.
While the percentage increase is bigger for office REITs, their current rents on a per sq ft basis are smaller, leading to a smaller absolute rise in rates, he said.
| Business rate rises by company | |
|---|---|
| REIT | % change |
| Workspace | 55.9 |
| Great Portland Estates | 46 |
| Derwent | 45.4 |
| Capital & Counties | 42.2 |
| Shaftesbury | 36 |
| Hammerson | 14.7 |
| British Land | 11.6 |
| Intu | 10.3 |
| Land Securities | 9.9 |
| LondonMetric | 8.2 |
| Tritax Big Box | 1.7 |
| Assura | 0.8 |
| SEGRO | -0.1 |
| Hansteen | -4.6 |
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