Retail and Leisure Spotlight Spring Edition 2021

Retail and Leisure Spotlight

The reintroduction of business rates is casting a dark shadow over property decision-making in the UK’s retail, leisure and hospitality industries. At a time where these industries are already under extreme pressure, can the temporary business rates relief really provide enough respite to our occupiers and landlords?

After arguably the most challenging year of trade in decades, the government finally announced on the 3 March 2021 that in England, from the 12 April 2021 many non-essential occupiers have just 11 weeks to recoup some of their lost earnings before the 100% business rates holiday ends on 30 June 2021. While we appreciate that those sectors most adversely affected will have been business rates free for 15 months, at a cost of around £14bn to the Exchequer, the announcement was too long in the making. An extended delay of rates until October 2021, the start of the bumper Christmas shopping period – would have been kinder.

Eligible retail, hospitality and leisure properties in England can continue with 100% business rates relief from 1 April 2021 to 30 June 2021. Thereafter, there will be a further nine months of discounted rates at two-thirds of the normal charge (between 1 July 2021 to 31 March 2022). Relief claims are capped at a maximum of £2m per business for properties forced to close due to the pandemic, and £105,000 per business if they were able to remain open.

Retail, hospitality and leisure businesses will pay no rates during 2021-22.

Emma Williams Partner, Retail

Mark Henderson International Partner Head of Statutory Valuations

Spring Edition 2021

ENGLAND

SCOTLAND

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In the staggered relaxation of COVID-19 restrictions, 12 April 2021 marked another milestone for the hospitality industry. The government has advised the nation to limit its time indoors and hospitality operators have once again showcased their entrepreneurial spirit. Investing heavily in temporary al fresco options on no income, venues have had to fight for their privilege to serve at legal and parliamentary level. The revolt of Soho residents against al fresco dining was fortunately overturned by the Council, on the basis it would give “a fighting chance for recovery” to struggling businesses. A “formal consultation” on whether to make al fresco a permanent fixture will start around May.

AL FRESCO DINING

WALES

ukretail@cushwake.com

@CushWakeRetailUK

@CushWakeRtailUK

@Cushman&Wakefield

BSc (Hons) MRICS IRRV International Partner Statutory Valuations +44 (0) 7771 921 883 mark.henderson@cushwake.com

Mark Henderson

Emma Williams

MA MRICS Partner, Retail +44 (0) 7917 423454 emma.williams@cushwake.com

BA(Hons), PGDipSurv, MRICS Partner, Head of Leisure & Restaurants +44 (0) 7793 808 495 matt.ashman@cushwake.com

Matt Ashman

Dominic Bouvet

International Partner Head of UK Retail & Leisure +44 (0) 7970 380025 dominic.bouvet@cushwake.com

BUSINESS RATE

The occupier perspective

Uncertainty

The discounted rates relief also has a claim caps of £2m and £105,000 per business in England, meaning a hefty bill still awaits many occupiers. Larger businesses with prime and multiple sites in city centre locations will be hit hardest. Occupiers of over 300,000 commercial premises across England, lodged a “check” to their property tax valuation during 2020, up 320% on 2019. Many of these cited the pandemic as “a material change in circumstance (MCC)”. The hope was that, ultimately, it would allow substantial and prolonged adjustments in rateable value to drive down the business rates liability. The £105,000 and £2m caps, which have been the primary focus for some, are minimal compared with the level of reductions in overall business rates bills that could have been achieved, if the appeal was successful. However, on 25 March the government kyboshed this plan, deeming COVID-19 as an economic factor only, and one to be taken account of at the next business rates revaluation (in 2023). In place of the MCC appeals, the government has introduced a new £1.5bn business rates fund which will be administered by councils to ratepayers “most affected in economic terms”. This raises two questions. Are councils sufficiently equipped to do this? And if we must wait (up to 6 months) for primary legislation to make the government’s move retrospective, will the occupiers most in need of help still exist to receive it?

Moving goal posts

The uncertainty around business rates is influencing occupiers’ decisions, with many opting to ‘wait and watch’. Certainly an announcement of a permanent and significant reduction in business rates, sooner rather than later, would give an enormous and immediate boost to the occupier market. In the meantime, we are increasingly seeing occupiers proposing business-rates-inclusive deals and dual proposals laying out the various possible business rates reinstatement scenarios, making leasing decisions difficult for both the occupier and the landlord.

Treading water

the landlord perspective

Landlords have faced a different challenge over the last 12 months with many occupiers withholding rent and service charge each quarter or vacated altogether.

The business rates revaluation in April 2023 will be based on property values as of 1 April 2021 – a challenging prospect and too far away. How can one calculate rental values as at 1 April 2021? Is downward-rates phasing in advance of this, an option? We need an understanding of where the business rates system is going and for tax to reflect performance. We would be surprised if business rates are ever reinstated to their full value. The system is outdated, and this is the opportunity for reform.

What lies ahead

Offshore and online occupiers, as well as consumers, need to take a share of the tax burden. In a year that saw online brands thrive (For example Amazon reported +35% profit increase and ASOS +329%), while high street vacancy rates and administrations surged, this discussion couldn’t be more poignant. Our high streets are more than ‘real estate’, they represent our towns and cities, jobs, the economy, community spaces and the health of the UK. We need the government to act, now, before it’s too late.

AL Fresco

Let's go outside by:

Why al fresco licences need to become permanent:

Of course, it’s not all glamour. Wasps near your food, second-hand cigarette smoke and inclement weather can really take the joy out of outdoor hospitality. But according to research by the UK-based company BigHospitality, these foibles can be overlooked if the service is right. Up to 79% of respondents would increase their dwell time at venues if they received table service while al fresco. Therefore, excellent ‘hospitality’ really is at the heart of a successful al fresco experience. Introducing street dining could be not only safer following the pandemic, but potentially more enjoyable for customers and more profitable for venues.

>>The customer

>>Fight for survival continues

While the fight to trade al fresco has been tough, it undoubtedly answers the needs of customers. As pent up demand is released, Soho House’s Nick Jones anticipates “People will go mad” banking on another “roaring Twenties”. Incipio (the team behind Pergola and The Prince) had 125,000 booking enquiries in the 5 days after Boris announced his roadmap on 22 February 2021, while The Guardian reported our national beer gardens had sold out for months . This is no surprise, as Kate Nicholls, chief executive of UKHospitality, observes, “After the dreadful year we have had…people are eager to socialise with friends and family again”. Outdoor dining has a casual, festive feel that is particularly loved by 25-34-year olds. Millennials are the ideal target market, so it is important to cater to their needs and wants. A study conducted by Study Hall Research for FSR found that 43% of diners in this age bracket claimed they 'spent more money on alcohol when dining outdoors', and that the amount they spent would also increase with 'the presence of an outdoor bar'.

Restaurant premises fully booked or booked out are still operating at 60% capacity due to restrictions. For most, reopening is unprofitable, or, at best, will just cover costs. Al fresco is a lifeline for these venues. It is comforting that Local Authorities are granting al fresco licences for a period of 12 months or more, unless there is a good reason not to do so, and under last year’s act the government would expect licences to continue to apply into this summer. However, these temporary provisions are due to expire on 30th September 2021. Parliament will be debating whether to extend these licences - if we are to maintain the vibrancy of the UK hospitality scene, and the UK’s economic lifeblood – it is vital that they do.

Matt Ashman Partner Head of Leisure & Restaurants

Al fresco dining allows restaurants, bars and cafes to remain open in safe conditions for staff and customers while helping to maintain the economy.

Restaurants can capitalise on the festive vibrancy of outdoor dining. When a venue has guests outside, passing pedestrians are drawn to the atmosphere and energy without even needing to see the interior.

Al fresco dining for restaurants is particularly popular in summer. This is likely to be truer than ever, post-lockdown. However, with the right investment, seasonality is less relevant.

79% of UK diners would increase their dwell time in a restaurant if they could dine outdoors.

43% of diners claimed the amount they spent would increase with the presence of an outdoor bar.

High streets are more attractive and inviting lined with al fresco customers.

The pedestrianisation of roads to deliver al fresco helps to reduce congestion and air pollution.

Business Rates

NORTHERN IRELAND

100% business rates relief in 2020/21 to all businesses in the retail, hospitality and leisure sectors regardless of the rateable value.

Retail, hospitality and leisure businesses with a rateable value of up to £500,000 will not have to pay business rates until March 2022.

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There will always be a debate, but these areas must evolve to survive, and al fresco dining is part of that evolution. We need to permanently shift and, more importantly, make it easier for venues to implement. Robert Jenrick (Housing and Communities Secretary) said: “I'm determined that we don't let red tape get in the way of a great British summer…” If the planning is in place, it will fall to landlords and councils to catch up.

Jenrick added, “It’s hard to imagine it wasn’t available to start with. I’m ensuring it will continue to apply until at least March 2022 and I’m keen to make it permanent.”

Retail, Logistics & Industrial

Valuations & Ratings

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WHY OUTDOOR DINING SHOULD BE ON THE MENU, PERMANENTLY

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Furthermore the business rates relief does not cover vacant properties. Landlords pay ‘empty business rates’ on vacant properties if they are not re-let within three months. Consequently, Landlords have seen mounting business rates bills as the pandemic pushed some occupiers over the edge and new occupier demand dipped as travel ground to a halt. Empty rates bills for example for Arcadia and Debenhams alone are estimated to amount to almost £150m for landlords if new tenants cannot be found within three months. In our opinion, one solution by central government would be to extend this period to 9-12 months to allow landlords to find replacements/alternative uses for the space. The empty rates relief bill, urgently needs reforming to reflect the market and the time it truely takes to re-let vacant properties in today’s world.

Landlords have faced a different challenge over the last 12 months with many occupiers withholding rent and service charge each quarter or vacated altogether. Furthermore the business rates relief does not cover vacant properties. Landlords pay ‘empty business rates’ on vacant properties if they are not re-let within three months. Consequently, Landlords have seen mounting business rates bills as the pandemic pushed some occupiers over the edge and new occupier demand dipped as travel ground to a halt. Empty rates bills, for example for Arcadia and Debenhams alone are estimated to amount to almost £150m for landlords if new tenants cannot be found within three months. In our opinion, one solution by central government would be to extend this period to 9-12 months to allow landlords to find replacements/alternative uses for the space. The empty rates relief bill, urgently needs reforming to reflect the market and the time it truely takes to re-let vacant properties in today’s world.

If you would like dedicated business rates advice or to discuss potential retail and leisure opportunities, including opening a new outdoor dining venue, please get in touch with our team.

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