Wednesday 26th Oct 2016 - Logistics Manager

Business Rates Burden

Although the additional rental information being sought is intended to lead to greater accuracy in the initial Rateable Value assessment, it is likely that because of the volume of properties covered – as with previous Revaluations – thousands of these valuations will be wrong. The appeals system has always been popular and should not be underestimated and by foregoing the right to challenge an assessment, not only would a ratepayer miss the potential savings opportunities opened to them, but their share of the liability could increase if the Valuation Office Agency (VOA) concedes reductions elsewhere.

With the regulations and time restrictions for submitting appeals becoming ever more complicated, it is imperative to seek advice from professionally qualified surveyors who are experienced in the logistics sector as well as the local area to undertake rating negotiations. A poorly conducted appeal can set a precedent for later appeals, as well as closing the door for retrospective savings, emphasising the need for quality expert advice at the outset.

The concern for any logistics business – whether it is multi-facility or a stand-alone operation – is whether rental levels for its premises have risen more quickly than the average increase in business rents in the five-year period running up to April 1, 2003 (the reference date – see panel). If so, there is a likelihood that the VOA will set a new rateable value above the average increase, leading to an increase in rates payable that is also above average. While regional and other sector variances will influence the eventual rates burden falling on logistics businesses – which is why forecasting of future rate liabilities is so difficult – there are ‘clear and present dangers’ for logistics companies in doing nothing at this time.

Few valuation officers (VOs) appreciate the factors that drive site selection for logistics operations. How many are aware that retailers, distributors and manufacturers, for instance, are all attempting to push their inventories further down the supply chain so as not to directly pay for warehousing and storage? How many VOs appreciate how the annual operating costs for logistics activities are split between two main functional areas – transport and warehousing – irrespective of whether this is provided by in-house or by a 3PL? In either case, transport costs are likely to dominate the bottom line and attempts to minimise these will have a greater impact on site selection for stockholding purposes than site costs – i.e. rent and rates.

While manufacturers need to locate premises to minimise the combined inbound and outbound transport costs, but with a bias towards reducing the risk to the production functions, distributors, on the other hand, have very diverse inbound flows from a wide range of suppliers, with the costs hidden in the bought-in price and, therefore, do not have a significant impact on site selection.

Overall, the importance of transport costs will become even more pronounced with the increasing levels of road congestion, lack of support for developing a rail alternative, and current EU directives to reduce driver-working time, on top of the recognised shortage of lgv drivers within the UK.

So how have the above considerations impacted on the market in recent years?

Firstly, looking at regional trends, while there have been ‘hot cells’ of rental