Last week saw the release of the long awaited rates revaluation of all commercial properties in the UK. Although the immediate burden of rates will be borne by occupiers, the impact on rental growth and therefore your investment holdings, should not be overlooked.
Most areas in the UK have benefited from a decrease in valuations for rates. An 11% reduction in the north-east to a 2% reduction in the south-east. London is a different story, with the overall valuations increasing by total of 11% for all asset classes.
So, how will this impact on your current investments? How will it influence your purchase decisions over the coming months and years?
The immediate impact will be felt in new lettings. In theory, the cost of leasing space in London has now increased by 11%. There is a limit to the “pot” that tenants have to pay for occupancy costs, In our opinion, this increased rates burden will limit rental increases. Deals agreed will reflect the new rates burden and, in London especially, rents could show a slowdown in growth. As those open market lettings are the basis for settling rent reviews and lease renewals, the impact of this will be felt through the income received from investments.
Of course the opposite is true in those areas where valuations have fallen. Suddenly the “pot” for occupancy costs has increased. There is a real chance that in strong locations rental values could rise faster than areas where the rates burden has increased.
If you are looking to purchase investments then you may well receive better returns and rental growth outside of London for the next few years. That is not a prediction – just an observation based on the new reality.
However this does not take away from the essential truth. Location is the key to property investment. And there are more better locations in London than anywhere else in the UK.
To check the new valuation of your property click here
