The Decline in Commercial Property Rents is Easing: RICS
Survey
Tenant demand in aggregate has increased for the second
consecutive quarter. The pick-up in activity has been most pronounced in the office
sector followed by industrials. By contrast a small majority of surveyors are still
reporting that demand is slipping in the retail sector. The investment market has
passed a major turning point with yields falling and capital values rising quickly.
The combination of a near zero base rate (0.5%) and £200bn of additional liquidity pumped
into the credit market appears to be pushing investors along the risk spectrum in search
of a higher return.
Commercial property yields still compare very
favourably against equities and bonds on a relative valuation basis. However, over
the last couple of months the differential between the yields on these to other asset
classes and commercial property has begun to narrow. The latest IPD figures show
capital values continuing to rebound strongly.
Although rents are still thought likely to fall over
the next quarter, the net balance of surveyors reaching such a conclusion fell to just
20%. (RICS Monthly Economic Chartbook January & February 2010)
Whether these national trends will be reflected locally
still remains to be seen. Activity in the retail market has been strong in January.
(Brandon Simms)
Your Business Premises - Free advice from RICS
The RICS has published a CD to help businesses
looking to move, improve, sublet or run their premises more efficiently. The disc
includes detailed information and is an expert guide to making the most of your business
premises. Copies are available from the RICS at www.rics.org.uk
or visit www.propertyinbusiness.co.uk
Rateable Values will be Reassessed for 2010
On 1 April 2010 the rateable values of all commercial property will be
reassessed. This will directly affect the rates paid by occupiers and by owners with
empty property over the following five-year period. The rate liability is fixed by
multiplying the rateable value by the business rate fixed each year nationally, subject to
adjustments for any reliefs. The date to be used to fix the rateable value will be
rental values on 1 April 2008. At that date some parts of the property market were
relatively buoyant after a period of growth. The industrial sector will probably see
the least change but when the new rates bills arrive in April 2010 the market will no
doubt have changed dramatically since the valuation date in 2008. Getting the
rateable value correctly assessed will be a challenging exercise for rating professionals
but occupiers, and owners with empty property, should appeal if they think the figures are
wrong. Check your rateable value at www.voa.gov.uk/business_rates/index.htm
.
Following this new valuation and the new rate in the £ special
transitional arrangements will phase-in significant increases or decreases in your
business rates bill over the next 5 years.
Small Business Rates Relief is available for ratepayers with a single
property with a rateable value up to £18,000. If you applied for this relief in
2005 - 2010 you should not need to do so for 2010 but it is worth checking with your
billing authority. The calculation uses the small business multiplier for 2010/2011
40.7p instead of the standard one 41.4p. There is a calculator at www.businesslink.gov.uk .
There is still an opportunity to appeal and change the rateable value if
it is wrong after publication next April.
Empty Property Rates: Landlords check the rateable value.
Full rates are charged on empty premises so getting
your rateable value correct is even more important. Landlords who now come into
possession of empty properties would be advised to check that the rateable value is
correct, the tenant may not have bothered to check or lodge an appeal. Contact your
rating adviser if you think your rateable value is wrong as it is not too late to make a
challenge. Commercial Rateable Values used from 1st April 2005 are published on the
Web at the VOA Website: www.voa.gov.uk/business_rates/index.htm
. The Rating Lists for April 2010 are now available and are based on
April 2008 values.
Commercial Energy Performance Certificates
Time has run out to obtain your Commercial
Energy Performance Certificate (CEPC) if you are responsible for any commercial property
that is available to let or is for sale or assignment. These properties must have a
CEPC to be available by 5 January 2009. If there is no change of occupier, perhaps
when a lease is renewed under the 1954 L & T Act, then a CEPC is not usually
required. There are exemptions. Many companies have been set up to provide
these CEPCs but make sure you are dealing with a qualified Assessor and not just a middle
man. Get a quote first as the costs vary considerably.
Commonhold and Leasehold Reform
In leasehold flats and houses the Act is
designed to give people reforms that make it easier to buy their freeholds, and - for
those who do not want to buy - better options for managing their own homes with greater
protection against abuse. Leasehold Valuation Tribunals (LVTs) are receiving an
increased number of applications particularly disputing service charges.
The residence test and other restrictions have
been abolished. Marriage value is disregarded where leases have more than 80 years
to run. If marriage value applies it will always be split 50/50. The
requirements to form Right To Manage (RTM) and Right to Enfranchise (RTE) companies are
detailed in the regulations.
The price to pay for a new longer lease or to
purchase the freehold is still a difficult valuation. The Lands Tribunal is deciding
cases each of which may change the way the valuation is prepared. Make sure that
your adviser is up to date. As Brandon Simms is a chairman valuer of LVTs he is
always fully in touch with new decisions.
Caps On Again but Watch the RPI!
The Rent Acts (Maximum Fair Rent) Order 1999 introduced
from 1st February 1999 a "cap" on Fair Rents based, usually, on inflation
(measured by changes in the Retail Prices Index - RPI) plus a standard percentage .
If the rent has not been registered since 1999 the standard addition is 7.5% in all other
cases 5%. Landlords who carry out expensive repairs or improvements can apply to
avoid the capping but the tests are strict.
Objections to new registrations are heard by Rent
Assessment Committees. Even if the rent is capped an appeal will trigger a
recalculation of the inflation figure based on the date of the hearing which is usually
the effective date of the new rent. From the tenant's point of view the 2 year
cycle, when the landlord can apply to the Rent Service for another increase, is also
delayed.
The current economic climate has caused unusual
fluctuations in the RPI so the capping calculation will vary significantly from month to
month. The timing of the application for rent registration or an appeal may be
critical to avoid being stuck with an unusual rent for two years.
All Change In The Courts - Watch those Protocols
