Chris Walker, director of Watling Real Estate, assesses the impact of Labour’s election victory

As the dust settles, Chris Walker of Watling Real Estate takes a look at how Labour proposes to bring about change and “stop the rot” in the UK’s struggling high streets and how this may impact real estate lenders into the sector.??

Having acted as property receivers over a number of shopping centres nationwide, Watling are acutely alive to the challenges facing landlords and tenants and what this means for the future viability of many retail centres.????

In April this year Labour launched its 5 point plan “to breathe life back into Britain’s high streets” - a bold strategy which aims to tackle anti-social behaviour with on-the-spot fines and includes the rolling out of banking hubs in communities in an effort to reverse the decline in access to crucial services which has occurred over a sustained period under the Tories’ 14-year watch.???

More pertinent to retail property, however, is Labour’s proposed business rates reform. An important source of revenue for local authorities in delivering essential services, business rates has been a hotly contested subject for many years and across numerous governments of both political persuasions.?

The demise of the retail sector has been well-documented for many years. With increasing competition from cheaper online retailers, a global pandemic, wage inflation and an energy crisis to boot, it is no wonder Britain’s high streets are in a sorry state.?

Labour’s answer - replace business rates with a “business property taxation” to level the playing field between high street businesses and online retailers.??

With tenants increasingly viewing occupational costs “in the round”, higher business rates are contributing to downward pressure on retail rents with the unintended consequence of making it more difficult for landlords to service debt (with a resultant increase in number of landlord defaults) and a reduction in reinvestment in their estates, resulting in a poorer quality built environment.?

The rationale for change is sound but the detail in Labour’s proposals on how they will actually “level the playing field” is severely lacking.

The rumour mill has talked about a possible Land Value Tax which would take a hybrid valuation approach based on both the rental and land value of a property.??

Again, how this might work in practice is unclear and a likely outcome of any additional taxation on Landlords being a passing-on of that cost to occupiers in the form of higher rents. The result – a potential cancelling-out of the intended benefit of a tax reform.

Undoubtedly with best intentions at heart, could Labour’s efforts to kick-start the UK’s high streets perhaps be misplaced???

Following years of retail rents trending downwards and industrial rents rising, preserving revenue into the public purse is a balancing act. Online retailing is the natural and inevitable progression of a sector buoyed by globalisation.? Online retailers and their suppliers (like their High Street competitors) pay business rates at a proportionate rate to the rental value of the properties that they occupy – increasing rents for shed space means more money in the Government coffers. Declining rents in high street and shopping centres clearly has the opposite effect.???

With approximately 20% of businesses failing within their first year, rising to 60% in their first three years, perhaps a more effective way might be to look at increasing Empty Property Relief on new lettings to allow new tenant business time to become established and viable.

Perhaps a more impactful approach to reversing the fortunes of the high street is the repurposing of excess retail floorspace.??

With demand for retail floor space still trending at around 25% below pre-pandemic levels, this is not an improving picture.?

Opportunities and challenges will vary depending on local market specifics but key to the success of reinventing many sub-regional towns and cities (particularly in the North and Midlands) is to have a Government-led approach and partnership with key stakeholders.??

The introduction of a variety of alternative uses will be a catalyst for economic growth and investment; the introduction of residential uses will help meet national housing targets and increases in council tax revenues could outweigh any possible reform of the business rates.?

For further information, please contact:

Chris Walker , Director, Watling Real Estate , 125 Deansgate, Manchester M3 4BG