Can the ‘Empty Shop Bill’ bring meaningful change to the UK high street?
Or does it only target the tip of the iceberg?
Earlier this month (10 May), new legislation for empty retail spaces was announced in the Queen’s speech – a bill that gives local authorities the power to force commercial landlords to rent empty properties through compulsory rental auctions.
Landlords will have a one-year timeframe to fill the premises through traditional means before they go to auction.
The proposal comes as part of the Levelling Up and Regeneration Bill: a wider plan to rejuvenate the UK’s high streets. The idea is that a successful bidder, whether a business or community group, will take over the premises, ridding the high street of a derelict property and giving smaller businesses the chance to expand.
14.1% of UK shops were reported vacant in the first quarter of 2022, increasing from 12.2% in March 2020. The issue of vacant and boarded-up shops does not appear to be going away, despite the easing of COVID restrictions, and many retailers and retail bodies are happy that the government has decided to step in.
However, others are not so sure that compulsory auctions are an effective solution, and have suggested that the government’s proposal oversimplifies the root of the issue.
What it means for landlords and agents
The overall feeling among commercial landlords and agents regarding the bill is concern, given that control over their assets could essentially be taken out of their hands.
“We have very serious reservations about the ‘Empty Shop Bill’ and how it could ever work in practice,” says Nick Symons, Partner at MMX Retail.
“The proposed auction process appears flawed on many levels. It fails to address the commercial reality behind why there are so many empty shops across UK high streets, and it raises more questions and potential costs than it does meaningful solutions.
“In many cases, the cost of the auction process will be more expensive than the value of the shop in question. Will these costs be picked up by local authorities who are already facing very real cost pressures themselves?”
Symons raises further concerns that many landlords will share, with regards to health and safety, and what the rules will be when the property is empty due to factors outside of their control.
“Who will be liable for building repairs and making sure the shop meets health and safety standards? And what consideration has been given to landlords pursuing redevelopment of a store, and awaiting planning? Under this new proposal, could they end up stripped of their asset?
“Ultimately, at MMX Retail we believe this government’s energy, time and money would be much better spent on a meaningful reform of the archaic business rates system, rather than just sticking that in the ‘too difficult’ folder to gather dust.”
Business rates are a tax on non-domestic properties, e.g., shops, restaurants and offices, and they are currently calculated using the property’s estimated value on the open market. Some reforms of the current business rates system are set to come into action next year, including more frequent revaluations and a new relief to support green property investments.
However, the fact remains that a business’s rateable value will not always reflect its revenue, and this can be crippling for businesses – particularly smaller ones.
What it means for retailers
Small businesses undoubtedly suffered as a result of the pandemic, with many not surviving lockdown after lockdown. Many retailers’ first response to the bill was positive, with the hope that it would encourage landlords to reduce rental fees and explore flexible leasing options.
On the one hand, it may seem like this change would be ideal for retailers, as it should provide more opportunities to expand and open new stores for a lower price and/or with reduced commitment. Whilst many have voiced their praise, others have their doubts.
“Business rates remain high, and are the real barrier to prospective tenants taking on empty units.” Says Phil Pinder, Director of Wizardry at The Potions Cauldron & Vice-Chair of the York High Street Forum.
Yet again, business rates are exposed as the true enemy of the high street. They put brick-and-mortar stores at a significant disadvantage to e-commerce stores and make retailers question whether they need (or can afford) a physical presence.
Pinder continues: “If the government wanted to really help the high street, they would start with business rates, the only tax that falls on a business irrelevant of how much revenue they make. A Victorian property tax that is no longer fit for the modern age – reform is long overdue, and this latest bill I think is simply tinkering at the edges.”
Although the overall aim of the bill is to support retailers, as well as revitalising the high street and increasing footfall, there are clearly still significant systemic issues to be tackled.
An uncertain future
It is not yet evident whether the Empty Shop Bill can bring the meaningful change to the high street that it intends to, but experts suspect the solution is not as simple as merely filling empty shops as quickly as possible.
Furthermore, with many costs and finer details not outlined in the government’s announcement, it is difficult to say how the compulsory rental auctions will work in practice, and who will be responsible for additional costs.
In reality, we are likely to see a surge in pop-up shops and other flexible formats on the high street, as a means for landlords to keep their properties in use whilst seeking longer-term tenants. Whilst this would be a positive outcome, it is reasonable to suggest that there is still more the government could do to support small businesses and local communities, such as a total reform of the business rates system.