From 1 April 2023, the rateable values of all non-domestic properties in England – including shops, offices, pubs, warehouses, factories, and guest houses – was revaluated for the first time since 2017. This revaluation was based on property values as of 1 April 2021 – a year into the Covid-19 pandemic; a period of intense challenge for many businesses across the UK.
While the worst of the pandemic is seemingly now behind us, commercial property owners and occupants are continuing to face a unique set of challenges. The rise of hybrid working that the pandemic brought has left many organisations questioning how they should use their office space moving forward, and whether they are getting the most value from it currently. After all, businesses may be paying just as much, or even more, on utilities, rent, etc., than they did prior to Covid. This is placing extra pressure on organisations who are already facing financial hardship caused by various socio-economic factors, including the cost-of-living crisis. As such, this is pushing many businesses to embrace the flexible office space model, which not only gives them the freedom to choose how and from where they work, but also helps to build confidence, give cost serenity, and keep additional costs to a minimum.
The question is: is the business rates increase the final straw for many commercial property owners and occupants?
Businesses are in desperate need of certainty
If there’s one thing that is important to all across an organisation’s leadership – from the founders and senior team to the board of directors – it’s the certainty of cost. The world of business can be incredibly volatile, so having the ability to predict what’s coming round the corner, and whether it will lead to a profit or loss, is crucial. For commercial property owners and occupants, knowing exactly how much they are paying in utilities, rent, and other variable costs, helps them to make the right strategic decisions to take the business forward.
As it stands, however, the commercial property market is distinctly lacking in this vital sense of certainty, hamstringing the attempts of organisations to make sound decisions regarding growth and future plans. Utilities are continuing to rise, often unpredictably, so businesses cannot hope to estimate where they will be in even a few months’ time, and whether they will be profitable or at a loss. Now, with rise of business rates, the uncertainty that organisations are experiencing is set to be compounded ever further.
Of course, central government and local councils must find ways to recoup the losses they incurred during the pandemic. However, inflicting more pain on companies by increasing business rates at a time when they are already struggling is the wrong approach. With small-to-medium-sized enterprises having long stood as the lifeblood of the UK’s economy, government should be providing greater support to businesses, rather than higher costs. With rates having risen regardless, organisations must seek alternative ways to reclaim the sense of certainty that is essential to their growth, strategic planning, and success.
The flexi-office model provides a solution
The exodus towards the flexible office model stems from the issues with the traditional model. Licensing agreements are typically rigidly set over long periods of time – often several years or even up to a decade – and the associated expense of legal fees can cause costs to spiral. In addition to this, time to transaction is regularly far longer than it should be, leaving prospective occupants in a state of limbo as they wait to move in. The beauty of signing a six-to-18-month licensing agreement with a flexi-office provider, however, where you aren’t required to spend so much – or at all – on legal fees – means businesses can transact and move their team into a new space within a matter of days.
What’s more, because flexible office providers offer a ‘plug-in and play’ solution, with all the required facilities already in place, initial investment in the space is virtually zero for new occupants. This means that they can focus on the task at hand – namely, delivering products and services to customers – without the added hassle of buying desks, chairs, sofas, and all the other furniture and assets that make up a modern office; it’s all there waiting for them. Not only does this help create focus, it also provides cost certainty which is in such short supply for those currently occupying a traditional office space.
Certainty in uncertain times
Due to the current economic uncertainty and massive increase in variable costs, many businesses in traditional office spaces aren’t renewing their leases, and are instead discovering what a flexi-office can offer to them. Not only is this helping business leaders to keep their operating costs to a minimum, but is also benefiting workers who have also seen their utilities cost soar at home. By sharing their time working between home and the office, employees can also keep their utilities costs down, while maintaining the level of flexibility that many workers have grown accustomed to since the pandemic.
Ultimately, flexibility and certainty are exactly what businesses need right now. The business rates rise will serve only to deprive organisations of both, pushing them further away from renewing ironclad, traditional office licensing agreements, and towards flexi-office spaces that better understand and suit their circumstances. The pandemic, and the years since, have proven that the future of work lies in flexibility. The rate increase simply amplifies this point, while simultaneously proving that the traditional office model is no longer fit for purpose.