The London Plan has placed greater significance on the importance of affordable workspaces across the capital, highlighting the need to provide for it in the planning process: a hugely positive step forward for smaller businesses. However, the 2023 business rates revaluation is likely to create a barrier for the type of operators creating more affordable workspaces, as it is these spaces that are likely to be disproportionately impacted, particularly in historical ‘fringe’ locations.

Due to the way in which business rates are applied, there is no differential between affordable and traditional offices from a rates valuation perspective, even if the rent on the property has been subsidised to provide affordable workspace – as per the London Plan. Therefore, although affordable workspace can be created via reduced rents, business rates could negate any material benefit.

The business rates relief system in its current format does little to support affordable workspace. At present the only rates relief mechanism available to ‘small businesses’ applies to those that occupy self-contained units capable of being separately valued for rates purposes and falling under a relatively modest Rateable Value threshold of £15,000. After the 2023 revaluation this will, in many central London areas, only benefit those occupying up to 205 sq ft of self-contained space with no benefit for open plan or shared areas.

Our data shows that affordable workspaces in London are likely to be disproportionately impacted by the forthcoming rates revaluation. Since 2010 business rates valuations in fringe areas have more than doubled and next April 2023’s revaluation is predicted to see further rises of between 15 per cent and 26 per cent in areas such as Farringdon, Southwark and Camden, placing these areas in a more expensive category for small businesses.

In fact, not only have rates per sq ft more than doubled in Farringdon since 2010 (£11.15 per sq ft to £23.78 per sq ft), but the gap between the core and fringe has closed considerably over the same period. This gap currently stands at 16 per cent, which we predict will continue to close and even potentially disappear after next April’s revaluation.

There are clear benefits for encouraging affordable workspace and with local authorities (LAs) starting to include policies within their Local Plans, together with thresholds and requirements for developers. The lack of any dedicated support for the rising cost of business rates looks at odds with this and could impact the viability of such schemes moving forward.

While it has been acknowledged that the recent impact of Covid-19 and the somewhat stalled nature of the rates retention pilots have impacted the scope for central Government and LAs to provide yet more rates relief, if affordable workspace schemes are to be promoted and succeed, targeted rates relief should be a key part of LA’s strategies for their implementation.

In the short term, LA’s could utilise their discretionary powers to provide rates relief with the costs then being reimbursed by central Government, a route which has been used frequently over recent years as a means of delivering targeted rates relief without the need for new legislation.

In the longer term, the wider benefits of supporting affordable workspace schemes will arguably exceed the financial support awarded through the business rates system. It is therefore essential that there is collaboration between all parties involved in the delivery and operation of affordable workspace to ensure their full potential and benefits are realised.

Further information

Contact Claire Bailey

Contact Alexander White

Savills Business Rates