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Where am I? > Home > Publications > Articles > Property > Prophesies come true

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Prophesies come true

It is a year since empty warehouses became subject to empty property rates (EPR).  The industry led by the UKWA expressed considerable concern about the impact that this legislation would have on the business carried on by its members.  A recent survey shows that these fears were well-justified, writes Lambert Smith Hampton’s Charles Partridge

It is a year since empty warehouses became subject to empty property rate (EPR).  The industry led by the UKWA expressed considerable concern about the impact that this legislation would have on the business carried on by its members.  A survey  carried out jointly by the RICS and Lambert Smith Hampton published in April showed that these fears were well-justified.  The Government’s intention when it changed the rules relating to EPR imposing 100% rate liability on warehouses which had been empty for over six months was to increase the availability of property and to reduce rents or the cost of occupation.

The imposition of EPR on warehousing and other properties could not have come at a more difficult time, demand for warehousing was falling in the spring of 2008, since when the credit crunch has developed into the severest recession since the War.  It is not surprising therefore that the report found that it was the recession rather than EPR which is the main driver behind increased vacancy rates for warehouses and lower rents and not EPR.

The report also found that there has been an increase in the demolition of perfectly sound warehouse property as a direct result of the changes in EPR.  It also found that owners of properties tended to wait for 12 to 18 months once a property had become vacant before making the decision to demolish it, which indicates that the speed of demolition of otherwise useful warehouse buildings is likely to increase in the near future.

The cost of EPR is a major deterrent preventing speculative warehouse construction.  The combined effect of early demolition and the moratorium on construction means that when this recession ends there will inevitably be a shortage of warehouse accommodation and rents will rise significantly.

The report found that one of the most popular ways of avoiding or reducing EPR is to take advantage of the temporary occupation provisions which re-start the six month exemption period if the property has been reoccupied for a period of six weeks.  A thriving business has developed in providing “goods” to satisfy the requirements of “rateable occupation”.  Indeed in many cases the warehouse operator has found it advantageous to pay for those goods to be stored in his empty property!  This means that in effect rents are zero or even less.  Undoubtedly the Government has achieved its short-term ambition of reducing rental cost of warehouses and other properties.

LSH and the RICS believe that the draconian rules behind EPR must be modified and conclude in their report that the period before which EPR becomes payable must be extended to at least 12-18 months and that the level of the tax should be reduced to 50%.

EPR has distorted demand for warehouse space since it encourages early demolition and discourages new speculative development.  It has, as a consequence, artificially reduced rental values during the current recession and will inevitably create restrictions on the supply of new warehousing when the recession ends driving up rents and creating inflation.  Ministers have not thought this policy through and in the long term its consequence will be precisely the reverse of that which they wish to achieve.

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