Following the Autumn Budget announcement, delivered by Philip Hammond, Chancellor of the Exchequer, at Westminster today, experts at real estate advisors, Cushman & Wakefield, offer their opinion on the impact today’s announcement on the UK’s property sector.
Kat Hanna, Insight Associate at Cushman & Wakefield, said: “The Digital Services Tax was perhaps one of the most surprising elements of today's budget, as many had expected Hammond to wait for his counterparts in other countries to agree to such a measure. The measure is, however, a cautious one, not commencing until 2020, and expected to generate around £400m per year. That compares to £27bn in business rates yield and £55bn from corporate tax.
“A co-investment Future High Street Fund offers up to £675m for investment in high street modernisation. If local councils were to chip in a further £675m, that will work out at a little over £100,000 per high street.
“The business rates relief for retailers with a rateable valuable of under £51,000 is likely to only apply to independent retailers. Such a low threshold may be helpful for retailers in small towns outside metropolitan centres, but will do nothing to help medium to large businesses, many of whom are bearing the brunt of the impact of online shopping. It’s also these large retailers who account for the bulk of employment in the sector, meaning the measure will do little to relieve concerns about further job losses.
“A more flexible planning system should help high streets to change. Consolidation of retail alongside conversion into residential or office use could well increase footfall and help revive flagging locations. However, as with existing PDR changes, while these measures may help some struggling locations, they may negatively impact successful high streets where alternatives to retail may offer higher values. It could also take more than a relaxation in planning to tempt residential and office developers into run-down areas and boarded up high streets, especially when conversion counts are taken into account.
“In short, the number and range of policies aimed at reinvigorating the high street shows willingness to tackle the challenge facing the countries retailers. For most high streets, however, the collective impact of these measures is likely to be lesser than the sum their parts.
“When it comes to levelling the playing field, there appears to be two main options on offer - taxing tech, or resolving to revitalise retail. It seems in this instance Hammond has settled for neither.”
On the Future High Streets Fund
Darren Yates, Head of EMEA Retail Research & Insight at Cushman & Wakefield, said: “The £675 million of co-funding for a Future High Streets Fund to facilitate the redevelopment of under-used retail is very welcome. However, with over a thousand towns in the UK, the sum is a drop in the ocean compared with what is required to bring about a meaningful revival in a significant number of the UK’s struggling town centres.”
Implications for our retail sector
Darren Yates, Head of EMEA Retail Research & Insight at Cushman & Wakefield, said: “Today, the Chancellor announced a number of measures aimed at shoring up the UK’s struggling high streets and ‘level the playing field’ with online retailers.
“Taken collectively, the Future High Streets Fund to facilitate the conversion of under-used retail to residential, a reduction in business rates on shops, pubs and restaurants with a rateable value under £51,000 and the introduction of a Digital Services Tax on platforms with global sales over £500 million, will alleviate some of the cost pressures for smaller retailers in small and medium-sized centres, they are unlikely to have a significant impact overall. They will do nothing to reduce the rates bills of the larger retailers which form the mainstay of most of our town centres.”
Mark Henderson, Head of Statutory Valuations at Cushman & Wakefield, said: “While business rates relief for those with a rateable value below £51,000 will be welcomed by small businesses in the regions and outside of metropolitan areas, it does little to help the major retailers, the stalwarts of our high streets and shopping centres, who have arguably been the hardest hit by the confluence of business rates revaluation and the rise in online shopping.”
“Those who have second homes will be looking at the detail of the budget closely, as their exceptions from business rates is set to be readdressed.”
“Philip Hammond could have helped the high street more by bringing forward the revaluation even further just as rental values are being hit.”
Lee Leyton, Associate Director, Residential Research at Cushman & Wakefield said: “While there were short references to the Letwin report, £500m for the housing infrastructure fund, and a measure to help neighbourhoods allocate land for local, affordable housing, as expected; the Chancellor’s last budget before the UK’s exit from the EU provided little in the way of residential property related issues.
“The Chancellor surprisingly chose to pass on the opportunity to build on recent momentum and take further ground from Labour on the conversation surrounding privately renting households, but there was slightly more complexity on the subject of retail-to-residential property conversion. While broad assessments of the future high streets funds potential to provide new homes through this vehicle will no-doubt provide some promising figures, in practice, it will be interesting to see what proportion of current retail property stock and land is suitable, and also feasible for conversion.”
Ian Anderson, Partner in Cushman & Wakefield’s Planning and Development team, said: “The government is right to use planning policy to bring more employment and residential uses to our high streets, which can no longer afford to be so dependent on retail. Encouraging new build homes for private rent (PRS) and co-working spaces are obvious ways of increasing footfall and bringing more dynamism back to local high streets through planning reform.
“Flexibility is the key to keeping high streets alive and thriving, but it still takes far too long to get the necessary planning permissions to transform redundant shops into new uses. The current system of Use Classes is 20 years out of date - it no longer reflects the needs or creativity of modern occupiers and entrepreneurs, complicating the process of getting what should be straight-forward planning permissions. A comprehensive review of Use Classes is long overdue, as is reform of the Compulsory Purchase Order (CPO) powers of local authorities that allow councils to intervene on key sites. The government must also embrace Meanwhile Uses, which could help to ensure empty retail units are put to use while waiting for planning permission or redevelopment.
“It is very positive that councils will have access to the Future High Streets Fund, however the Chancellor must also make funding directly available to local authority planning teams, which is essential to ensure process planning applications quickly.”
Keith Hardman, Head of Cushman & Wakefield’s Leeds office comments: “I welcome the Chancellor’s announcement on Business Rates Relief and the Future High Streets Fund, but more is needed to address the challenges facing town and city centre stakeholders. Funding is a key issue but measures to expedite change and address what, in many cases, amounts to market failure are at least as important.
Changes are necessary to provide public and private sector partners with greater agility and ability to allow town and city centres to “right size” and “right mix” the retail offer, introduce other uses, create open space, infrastructure and access improvements all of which are vital in building sustainable, fit for purpose, town centre communities.
Changes I would like to see include:
- Measures to accelerate the CPO (compulsory purchase order) process especially for schemes which are relatively modest in scale, but nevertheless make significant impact. The Chancellor has agreed to consult on the CPO process and Use Classes Order. This is welcome but should be a high priority and not one for the ‘long grass’
- We will learn in due course how the Future High Streets Fund will operate and how funding will be allocated and prioritised. It should allow Local Authorities to assemble land and develop directly where necessary and, I would suggest this could be as “trustee” for central government where income and future sales are returned to HM Treasury, whilst the Local Authority retains control and derives some financial (Business Rate capture) and wider economic betterment. The decline in retail property values in many town centre locations over recent years suggests the timing for purchasing is opportune
- An extended period for empty rates relief for new commercial development, where the timing is linked to the implementation of planning consent to encourage accelerated development.