The Autumn Budget is anticipated to introduce a series of tax increases that could directly impact commercial property owners, including changes to capital gains tax (CGT), national insurance contributions, and business rates. These changes could have a ripple effect across the property market, influencing both investment decisions and tenant demand. These are the key areas of concern for commercial property owners.
One of the most talked-about potential changes is an increase in Capital Gains Tax rates, particularly for higher-rate taxpayers. Under current rules, higher-rate taxpayers pay 20% on capital gains from selling investments and 28% on residential property. Speculation suggests that these rates could be aligned more closely with income tax rates, increasing the tax burden on landlords who sell their properties. For many, this will make holding onto properties more attractive than selling, even if the property is underperforming.
While a complete overhaul of business rates may not be on the cards for 2024, inflation-linked increases are expected. Business rates can be a significant cost for landlords holding an asset unoccupied for longer than three months. Any increases will add to the pressure of maintaining profitable margins. In some cases, landlords may need to absorb these costs to stay competitive in a market where tenants are increasingly focused on affordability and flexibility.
Mitigating the effects
While the Autumn Budget may introduce higher taxes and operating costs, there are strategies that asset owners can adopt to mitigate these impacts. By focusing on flexibility, sustainability, and tenant satisfaction, landlords can continue to generate revenue and maintain high occupancy rates, even in a challenging economic climate. Below are some key strategies:
Embrace sustainability
Sustainability is becoming a top priority for businesses, with many tenants seeking properties that align with their Environmental, Social, and Governance goals – in short corporate ESG policies are reshaping occupier strategies. This is driving demand for high-quality, energy-efficient spaces – the so called “flight to quality”. Tenants are willing to pay rental premiums of up to 15% for sustainable spaces, while older, un-refurbished assets remain empty.
Offering sustainable office solutions can set landlords apart in a competitive market, especially by investing in green building technologies, such as energy-efficient lighting, solar panels, and sustainable materials. Additionally, properties that are certified under sustainability frameworks like BREEAM or WELL are more attractive to tenants who prioritize ESG criteria. Not only does this increase tenant satisfaction, but sustainable buildings also tend to have lower operating costs, making them more profitable in the long run.
Focus on flexible workspaces
The demand for flexible workspaces has grown exponentially in recent years, particularly as businesses adapt to hybrid working models. Companies are increasingly seeking offices that can be easily reconfigured to meet their changing needs, without the need for costly and time-consuming refits. For landlords, this means offering spaces that are modular and adaptable, with features like moveable walls, flexible furniture, and shared facilities that can be used by multiple tenants.
Investing in flexible workspaces can also reduce vacancy rates, as these spaces are more likely to attract a wider range of tenants. Landlords who offer flexibility in lease terms, such as shorter leases or the option to expand or downsize, are better positioned to retain tenants and maintain steady rental income.
Maximise rental yields by enhancing tenant experience
With the potential for higher CGT and operating costs, landlords should focus on maximising rental yields by offering added value to tenants. One way to do this is by enhancing the tenant experience, through shared amenities such as gyms, wellness spaces, and communal areas. These features not only improve tenant satisfaction but can also justify higher rental rates. It’s easy to underestimate the power of community building when it comes to generating long term value from an asset.
Additionally, offering services like high-speed internet, managed IT solutions, and concierge services can differentiate a property from its competitors. By creating a sense of connection within the building and fostering collaboration, landlords can increase tenant retention and reduce the likelihood of long vacancies.
What next?
Looking beyond the immediate impact of the Autumn Budget, commercial property owners should also consider longer-term trends in the market. As businesses continue to embrace hybrid working models and prioritise ESG goals, the demand for traditional office space may continue to evolve. Landlords who stay ahead of these trends by offering flexible, sustainable workspaces will be best positioned to succeed in the post-budget landscape.
In addition, the potential for further regulatory changes around property taxes and energy efficiency standards should be on the radar of all commercial property owners. Staying informed about upcoming regulations and making proactive investments in sustainability and flexibility will be key to maintaining profitability in the years to come.
While the Autumn Budget 2024 is likely to introduce challenges for commercial property owners in the form of higher taxes and operating costs, there are several strategies that can help mitigate these impacts. By focusing on flexible workspaces, sustainability, and enhancing the tenant experience, landlords can continue to boost revenues and maintain high occupancy rates. The key to success in this environment will be adaptability, foresight, and a commitment to meeting the evolving needs of tenants.
October 29, 2024
How commercial property owners can boost revenues and occupancy in light of the Autumn Budget
by Dieter Wood • Comment, Facilities management, Property, Workplace design
One of the most talked-about potential changes is an increase in Capital Gains Tax rates, particularly for higher-rate taxpayers. Under current rules, higher-rate taxpayers pay 20% on capital gains from selling investments and 28% on residential property. Speculation suggests that these rates could be aligned more closely with income tax rates, increasing the tax burden on landlords who sell their properties. For many, this will make holding onto properties more attractive than selling, even if the property is underperforming.
While a complete overhaul of business rates may not be on the cards for 2024, inflation-linked increases are expected. Business rates can be a significant cost for landlords holding an asset unoccupied for longer than three months. Any increases will add to the pressure of maintaining profitable margins. In some cases, landlords may need to absorb these costs to stay competitive in a market where tenants are increasingly focused on affordability and flexibility.
Mitigating the effects
While the Autumn Budget may introduce higher taxes and operating costs, there are strategies that asset owners can adopt to mitigate these impacts. By focusing on flexibility, sustainability, and tenant satisfaction, landlords can continue to generate revenue and maintain high occupancy rates, even in a challenging economic climate. Below are some key strategies:
Embrace sustainability
Sustainability is becoming a top priority for businesses, with many tenants seeking properties that align with their Environmental, Social, and Governance goals – in short corporate ESG policies are reshaping occupier strategies. This is driving demand for high-quality, energy-efficient spaces – the so called “flight to quality”. Tenants are willing to pay rental premiums of up to 15% for sustainable spaces, while older, un-refurbished assets remain empty.
Offering sustainable office solutions can set landlords apart in a competitive market, especially by investing in green building technologies, such as energy-efficient lighting, solar panels, and sustainable materials. Additionally, properties that are certified under sustainability frameworks like BREEAM or WELL are more attractive to tenants who prioritize ESG criteria. Not only does this increase tenant satisfaction, but sustainable buildings also tend to have lower operating costs, making them more profitable in the long run.
Focus on flexible workspaces
The demand for flexible workspaces has grown exponentially in recent years, particularly as businesses adapt to hybrid working models. Companies are increasingly seeking offices that can be easily reconfigured to meet their changing needs, without the need for costly and time-consuming refits. For landlords, this means offering spaces that are modular and adaptable, with features like moveable walls, flexible furniture, and shared facilities that can be used by multiple tenants.
Investing in flexible workspaces can also reduce vacancy rates, as these spaces are more likely to attract a wider range of tenants. Landlords who offer flexibility in lease terms, such as shorter leases or the option to expand or downsize, are better positioned to retain tenants and maintain steady rental income.
Maximise rental yields by enhancing tenant experience
With the potential for higher CGT and operating costs, landlords should focus on maximising rental yields by offering added value to tenants. One way to do this is by enhancing the tenant experience, through shared amenities such as gyms, wellness spaces, and communal areas. These features not only improve tenant satisfaction but can also justify higher rental rates. It’s easy to underestimate the power of community building when it comes to generating long term value from an asset.
Additionally, offering services like high-speed internet, managed IT solutions, and concierge services can differentiate a property from its competitors. By creating a sense of connection within the building and fostering collaboration, landlords can increase tenant retention and reduce the likelihood of long vacancies.
What next?
Looking beyond the immediate impact of the Autumn Budget, commercial property owners should also consider longer-term trends in the market. As businesses continue to embrace hybrid working models and prioritise ESG goals, the demand for traditional office space may continue to evolve. Landlords who stay ahead of these trends by offering flexible, sustainable workspaces will be best positioned to succeed in the post-budget landscape.
In addition, the potential for further regulatory changes around property taxes and energy efficiency standards should be on the radar of all commercial property owners. Staying informed about upcoming regulations and making proactive investments in sustainability and flexibility will be key to maintaining profitability in the years to come.
While the Autumn Budget 2024 is likely to introduce challenges for commercial property owners in the form of higher taxes and operating costs, there are several strategies that can help mitigate these impacts. By focusing on flexible workspaces, sustainability, and enhancing the tenant experience, landlords can continue to boost revenues and maintain high occupancy rates. The key to success in this environment will be adaptability, foresight, and a commitment to meeting the evolving needs of tenants.
Dieter Wood is the managing director of design and fit-out specialists Interaction