Midbox warehouses to pay higher business rates multiplier

By Liza Helps Property Editor Logistics Matters

The news follows  the announcement by the Chancellor in this week’s budget that retail, hospitality and leisure properties that make up the high street will get a permanently lower business rates multiplier from 2026/27 and that any shortfall in the total amount of business rates collected (currently some £29 billion a year) will be made up from those operators and occupiers of properties with an rateable value of £500,000 or more.

This has been outlined in the Government’s Discussion paper 'Transforming Business Rates' published alongside the Budget. The paper states: “The government is reforming Britain’s economy to bring about a decade of renewal. Over the course of this Parliament, the government will create a fairer business rates system that protects the high street, supports investment, and is fit for the 21st century. 

“At Autumn Budget 2024 the government announced its first steps to reform the business rates system. An intention to introduce permanently lower multipliers for retail, hospitality and leisure  properties with a rateable value under £500,000 from April 2026/27.

"An intention to fund this sustainably via a higher multiplier on properties with an rateable value of £500,000 and above, which includes the majority of large distribution warehouses including those used by online giants."

While the Labour manifesto pledged that it would ‘level the playing field between the high street and online giants’ not many would have imagined that the net  to pay for the inequalities would also include Midbox warehouses and indeed any property be that supermarket, leisure centre or indeed large hotel which has a ratebale value of more than £500,000.

Rateable value is an estimate by the Valuation Office Agency of how much it would cost to rent a property for a year – currently the cut off date for that figure is on 1 April 2021.

According to property consultancy Gerald Eve there are some 2,460 commercial warehouses that have a rateable value of £500,000 or above and these include properties as small as 30,000 ft2 in Heathrow, 50,000 ft2 in Manchester, 75,000 ft2 in Milton Keynes and a 118,000 ft2 warehouse in Seaham in the Northeast – hardly the million ft2 plus online behemoths from which online retailers operate from in the Midlands.

Broadly any operator/occupier of a property that pays an annual rent of £500,000 or above can expect to pay a higher multiplier for business rates in 2026.

Savills national head of rating David Parker also notes : “The discussion paper does not single out specific types of properties only those properties with an RV of £500,000 plus; so that could include large supermarkets, large hotels and the bigger leisure centres as well as office buildings, manufacturing and tech facilities not only distribution warehouses run by ‘online giants’.”

Gerald Eve’s head of business rates Simon Green added: “The figures  we have given relating to the numbers of commercial warehouses with an RV of £500,000 or greater relate to the current RVs based on figres from 1 April 2021 but the Government intends to  bring forward these changes in 2026 when  there will be a new ratings revaluation based on figures calculated on 1 April 2024.

“If you look at MSCI rental growth  in the years from 2021 – 2024; we see roughly a 28% increase in rents and in certain locations that was up to 60%. That will translate into an increase in properties with a £500,000 rateable value. It could well be that by 2026 the number of properties caught in that band will go up.”

Rent levels across much of the country  are increasing with many regions seeing rents in double figures. 

Both Green and Park do point out that while many midbox properties may see RVs of £500,000 there is as yet no exact figures  as to what the multiplier will be and as the tax is meant to be fiscally neutral, that multiplier may well be  lower than anticipated if more businesses are brought into the higher rate. 

The Government’s discussion paper outlines areas for reform and is encouraging business and business organsiations to comment. It is conducting engagement between November 2024 and March 2025, with an initial phase of engagement before Christmas. If you would like to be involved, please contact transformingbusinessrates@hmtreasury.gov.uk by 15 November.