23 March 2018

It seems like no time since the petrol filling station (PFS) and convenience sector was clobbered by the rates revaluation which took effect on April 1, 2015 but which was based on property valuations as of April 1, 2013. Well the next rates revaluation is underway.  Fear not, however: new valuations will be benchmarked to April 1, 2018 and will form the basis of rates bills from April 1, 2020.

Because rates valuations are intended to represent the rental value of the property at the appropriate valuation date - April 2018 for the 2020 revaluation – the variety of factors (location, size, quality of the property and trading potential) that impact rental values will influence rates valuations. The gap between revaluations also plays a part and that was the major reason why many valuations increased dramatically for the 2015 revaluation.  The previous revaluation was introduced for the rating year commencing April 1, 2003 based on a valuation date of April 1, 2001. In the intervening 12-year period, the success and evolution of the convenience sector, relative to other property sectors, resulted in some valuations increasing by between 50 and 100 percent - and a few even more than that.

Lessons have been learned by the Department of Finance that huge step changes in running costs caused by a long gap between revaluations are difficult for businesses to absorb. For the next revaluation, the gap will only be five years and for that reason I do not expect the movement in valuations to be nearly as dramatic as for the 2015 revaluation. In fact the aspiration is that revaluations will be every three years in the future, and, if implemented, that would smooth out peaks and troughs even more.

That is not to say valuations will not increase. But depending on whether a particular valuation goes up by more or less than the average across all non-domestic property valuations will determine whether a particular business sees an increased or decreased rates liability.

It is too early to predict how the PFS/convenience sector will fare after the next revaluation. However, the food retail sector is dynamic and even within the last five years there have been major structural changes in shopping patterns. It is well recognised that internet shopping, home deliveries, the increased market share by discounters and a preference by consumers for regular top-up shopping rather than big weekly shops have conspired against the big supermarket model of retailing. Whilst the biggest beneficiaries have been discounters such as Lidl and Home Bargains, the convenience sector has also benefited. In some cases this has led to upsizing of retail space beyond the traditional 2,000 – 4,000 square foot model. The convenience offer has also expanded beyond the usual convenience foodstuff items. Convenience shops will include an off-licence, Post Office, butcher’s franchise or some combination thereof. Additionally coffee and food-to-go is a much bigger element of the offer than before and in some cases specialist operators – such as Subway - have been introduced.

All of this diversification has made the outlets much more attractive to consumers who visit them more often and spend more. All good for the retailers but increased business potential usually means increased rental potential, and whilst many premises are owner-occupied and so are not exposed to paying rent, an increasing rental tone could lead to an increasing rating tone.

Fuel sales, which logically should be falling as vehicles become more fuel efficient, generally make up a small portion of the overall valuation unless the volume is higher than around three million litres per annum.

There will be winners and losers. Either way it is better to have an idea of the overall impact sooner rather than later in order to prepare for eventualities. 

A specialist chartered surveyor experienced in rating valuations will be able to provide advice. That way, businesses can be prepared for 2020 and beyond. With the right advice there might even be mitigating measures that can be put in place now. Whilst the 2015 revaluation took many retailers by surprise there is no reason why the next one should.

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