Business rate rise will make coworking costlier, warns expert

Businesses are holding out for business rate reforms when the Autumn Budget is announced today. But for those who run coworking spaces, the outcome could dictate not only the viability of their own venture but also how and where their many clients work.

We are just days off from the Valuation Office Agency’s (VOA) draft business rating list, which is due for publication by 1st December, following Rachel Reeves’ Budget.

Firms will be waiting to see how they will be hit by the business rate reforms with dire predictions that UK high streets could be facing a £1bn increase in rates. An expert is warning, though, that a perhaps overlooked industry – coworking – could be hit hardest of all.

Disproportionate impact

While all businesses are concerned, Niki Fuchs, co-founder and CEO of London flexible office provider, Office Space in Town (OSiT).

Fuchs says that the upcoming business rates reform will hit flexible office providers in London disproportionately. She adds that this will “suffocate investment, jobs, and the future of town and city centres”.

In particular, she says that the plan to introduce a greater rate of payment for offices worth over £500,000 will really hit businesses in the capital, where property prices have traditionally been higher than other cities in the country.

In fact, in London, there are currently around 16,780 properties with a rateable value over £500k, and so these will be subject to the reform. And, if business rate bills spike, then coworking costs for members will also likely rise to absorb the increase.

“The impending Budget and the Valuation Office Agency’s draft rating list will determine whether London’s flexible workspace sector continues to thrive or is strangled by outdated tax policy”, says Fuchs.

Ripples nationwide

Zoe Daines runs Freshmill, a coworking space in the Sussex town of Haywards Heath. She says that coworking businesses outside of the capital are also concerned.

Her venture houses between 300 workers both in serviced offices and as hot deskers. She says that the potential hike in business rates will have a “devastating impact”, but could also put services “out of reach” for the many SMEs that use coworking spaces.

As Fuchs warns, “treating innovative, mixed-use buildings as single units ignores how modern businesses actually operate and risks sending rates bills skyrocketing overnight.” Both Fuchs and Daines say the Government should be looking at finding smarter solutions.

What are businesses concerned about?

Business rates are charged on the “rateable value” of a property and owners of hospitality businesses in particular are shouting for business rate reform as their properties tend to be sizable in order to hold their customers.

In July, Nick Mackenzie, Greene King’s chief executive, lobbied the Government to change business rates tax so that it is charged on profits, rather than on property. This, he argued, would help relieve the financial pressure on the struggling pub industry.

This is also true of coworking spaces that tend to be in city centres where property is more valuable to entice customers. These businesses have also sometimes taken over spaces that were held by businesses, which decided to get rid of their real estate during the Pandemic, and have since adopted a hybrid working model.

However, retail giants Sainsbury’s and Co-op have also stated that reform and relief is needed. Sainsbury’s suggested that a 20% cut in rates could result in the creation of over 17,000 retail jobs while Co-op issued a depressing prediction that 60,000 small shops and 150,000 jobs disappear if radical change doesn’t happen and fast.

While industries might have varying needs – there seems to be universal desire for business rates to be frozen, relief offered where needed and the current model of taxation examined.

The warnings of stagnation or, worse, closures are echoing across industries; and we are just days off hearing whether these concerns have been heard.