Pictured above: Mark Clapham

Rating experts at national commercial property consultancy Lambert Smith Hampton (LSH) are calling on the Government to expand tax incentives linked to business rates beyond Enterprise Zones in order to stimulate new development.

Mark Clapham, Head of Rating at LSH's Birmingham office said the need was urgent following a sluggish rental market and the widely criticised rating revaluation in 2010.

He said, "The shortage of finance has all but eradicated speculative development in most major cities in the Midlands, including Birmingham, Wolverhampton and Coventry, raising concerns about the lack of supply of new buildings when market conditions improve. This has been further compounded by last year's rating revaluation, in which the Valuation Office Agency set business rate assessments for the next five years by reference to market conditions at April 2008."

Mark Clapham added, "In some areas, the new rating assessments do not properly reflect the start of the decline in market conditions. As a result, rate liabilities will remain disproportionately high until 2015. The impact of business rates not only pervades the investment market but also the occupational business sector, with the issue of empty rates becoming even more of a headache for landlords of vacant property. 

"In some locations, the business rate liability is equal to or even exceeds post recession rental levels. As a result, even more generous rental deals are required to entice new tenants, with landlords being prepared to share the excessive rate burden in some cases.

"The situation shows no signs of abating. The next rating revaluation is expected in April 2015 and will almost certainly reflect the rental market at early 2013. The likely result of the shortage of stock and ongoing lack of new development, combined with a rise in occupier demand, will be an increase in rents just in time for the next rating revaluation. This will be particularly prevalent in Birmingham, which currently has less than three years supply of grade A office space based on average annual take-up figures.

"The new Enterprise Zones announced in the spring Budget will provide some tax allowances, including rates exemptions, in an attempt to encourage new development, although the details of any such advantages of developing or occupying within an Enterprise Zone are as yet unknown. Whatever the outcome, while the tax allowances emanating from Enterprise Zones s will be of benefit to those that occupy space within them. They will not in themselves create the demand for speculative development in other surrounding areas.

"The only guaranteed way of stimulating new development is by putting an end to 100 per cent empty rates charges. The Government must therefore consider its actions carefully before making any firm decisions. In the meantime, investors and businesses seeking to reduce their rates should seek professional advice. 

"The lack of transactions at or around the valuation date of April 2008 has prompted the VOA to assume a 'defensive' position unless evidence is brought to bear that the assessment is excessive, placing the onus on the ratepayer to make a case for a reduction," he said.

For more information about Lambert Smith Hampton, please visit their website here: www.lsh.co.uk