Friday 28th Oct 2016 - Logistics Manager

What price an empty warehouse?

Developer SEGRO reckons that the government’s decision to require business rates to be paid in full on empty industrial buildings will cost it £8 million this year.

Hardly surprising then that it has undertaken 450,000 sq ft of demolitions in the first half of this year, compared with 400,000 sq ft for the whole of 2007.

Fears that landlords would demolish buildings rather than pay rates were thought unfounded when the government first mooted the tax – but now it is a reality.

Under the new legislation, which came into force in April this year, owners of all empty commercial property now have to pay the full business rate after a three-month period of grace for commercial premises and six months for industrial property and warehouses, leading increasing numbers to take these buildings out of the marketplace.

In one case the New West building in Longbridge, Birmingham was demolished despite having a potential tenant in the offing. Developer St Modwen was paying £2,300 a day or £700,000 a year in rates for the 757,000 sq ft building, which was built in 1973 and was originally part of the MG Rover production complex.

Bill Oliver, chief executive of St Modwen, said: “As a result of Empty Property Rates, St Modwen and many other companies are being forced to demolish potential valuable assets. St Modwen has demolished well over one million sq ft of space, which could have otherwise been leased or sold during the pre-development period.

“This measure will kill speculative schemes, companies just won’t commit to building unless they can guarantee a pre-let or pre-sale.”

There are stories everywhere of owners and landlords making the decision to demolish instead of seeking tenants in the pre-development period. Rod Thomas of rating at Vail Williams, highlighted one warehouse building in Basingstoke Road demolished early as a direct result of the legislation.

Even councils are in on it. Swindon Council said it was forced to spend £430,000 on demolishing a building on a 14-acre site at North Star Avenue, Swindon, where Clare’s Retail Equipment used to make supermarket self-scan checkouts, shopping trolleys and kiosk units, rather than face paying £110,000 a year on rates which it felt it may not recover.

There are calls for the tax to be repealed by the British Property Federation, the CBI, the British Chamber of Commerce, the United Kingdom Warehousing Association as well as many others. There is even a bit of a back bench rebellion with Halifax MP Linda Riordan proposing a Parliamentary Early Day Motion to reintroduce empty property tax relief.

There is even a senior government adviser John Nicholls, who chairs a group representing the government-funded urban regeneration companies, who is against the tax.

He said that owners are demolishing empty buildings to avoid paying the tax introduced in the most recent budget, leaving parts of the country resembling bomb sites. Regeneration projects had been rendered unworkable, threatening jobs and new homes, he said. Some developers are simply leaving sites unfinished rather than risk liability for the tax.