Rates kill off growth

For the continued success of businesses which specialises in providing quality office accommodation depends on expanding portfolios and aiding the growth of economy-generating SMEs. Progress can only be made, however, when the property investment market pulls itself out of the mire and the scales of build cost and land values reach something nearing equilibrium with open market value.

The appetite of banks and other investors to fund property development where the income stream is short is, unsurprisingly, not huge. Expansion and new centres will be possible in the very near future; that is if government doesn’t increase tax burdens further. The announcement in November from the Chancellor regarding empty rates did little to support the plight of SMEs and their landlords.

The supply of affordable, quality accommodation for SMEs is critical to their success. Unfortunately new development has completely dried up, with private sector developers and operators of managed workspace not prepared to bridge the gap between cost and value. Value will continue to be eroded unless the permanent threat of empty rates is lifted. Already several of Basepoint’s developments have had to be pulled or delayed. Now only the public sector can afford to develop innovation and business centres. Yet with public spending under close scrutiny leading up to an election, these too are being deferred or cut out altogether.

A typical centre will be home to around 80 businesses, employing between one and ten people. These start-up and SMEs businesses are vital to a healthy thriving UK economy, as recognized by the Chancellor through other tax concessions for small businesses. Yet if business centre operators like us are unable to expand their services because of an unfavourable tax burden, more small businesses will fail, less will start up and local communities and the UK economy will be the poorer for it.

Over the past few months, the churn rate for businesses within Basepoint centres has begun to recover to its pre-recession level of 28 to 30 percent – an indication that the SME market is stabilising with the numbers joining compensating for those lost. Yet the problems are evident when you review the detail of companies leaving Basepoint. Data suggests that of businesses leaving centres In October 2007, 17 percent were expanding and purchasing freehold/leasehold property.

By October 2009 this had dropped to three percent, despite the downturn in the market price of freehold property and the easily negotiated benefits to be gleaned from the leasehold market. 

The economic downturn and the effect on small businesses is further demonstrated when we review the numbers of companies downsizing, moving back home or ceasing to trade which in the year to October 2007 amounted to 48 percent and to October 2008, 49 percent.  At October 2009 it had increased to 52 percent. Given the relatively large scale of the sample, this has been a significant loss and seems to be showing little in the way of recovery.

In short, help is needed to create the opportunities for new business start-ups and SMEs. Yet in order to develop the economy enough to encourage their growth, a concerted effort is needed to build and develop the infrastructure to help and assist them. This has to include a consistent and sustained support strategy from the government which should include easier access to funding, a more relaxed approach to the tax burden imposed on SMEs and their landlords, and a consistent and efficient support network.  

If the economy is to recover and grow, we need to invest time and money in developing embryonic businesses. Only under a canopy of good funding, support networks and affordable business premises will they grow.