More SMEs searching for coworking space following business rate rise

UK business owners are exploring coworking spaces as a cheaper alternative to full-time office space, following a rise in business rate valuations at the start of this month.

On 1 April 2023, new rateable values – the figure used to calculate the tax paid on commercial properties – were introduced following a government revaluation.

The day before the changes came into effect, data from Google Trends show that searches for ‘coworking space’ hit a two-month high. This suggests that business owners are scouting out flexible office contracts due to the significant cost-savings they offer.

According to a government press release, UK office properties have been heavily impacted by the change. On average, they have seen a rateable value increase of 10% – reason aplenty for managers to look at switching to a shared workspace.

Google Trends chart showing increase in searches for ‘coworking space’ from 01/02/23 to 01/04/23. Data source: Google Trends (https://www.google.com/trends)

Business rate rise 2023: what are the new rates?

For the uninitiated, small business rates are essentially a form of council tax for commercial properties. They are calculated by multiplying the rateable value of a business’ premises, with the ‘multiplier’ (also known as ‘poundage’) set by the government.

While multipliers usually rise with the Consumer Price Inflation (CPI), the current sky-high inflation rate has meant that the government has frozen the small business multiplier at 49.9p – rather than rising to 52.9p. This keeps bills 6% lower.

Nonetheless, new rateable values, as determined by the Valuation Office Agency (VOA), were introduced at the start of the new financial year, coming into effect on all non-domestic properties in England and Wales.

Several factors can influence a business rate bill, including location. However, from 1 April, the total rateable value on the local lists for England and Wales has increased by an average of 7.1%.

Good news for pubs and shops; bad news for offices

Some firms will see very little difference to their balance sheets following the change. Government updates report that retail firms and pubs have actually seen a decrease in their business rate bill following the changes.

Estimates put the mean decrease at 17% for pubs, and 10% for retailers – a welcome lifeline for these sectors, which have been especially winded by the energy crisis.

It is a different story altogether for offices. Office properties saw an average increase in their rateable values of approximately 10% on April 1 – a huge surcharge for firm owners which has also coincided with the end of the Small Business Relief Scheme.

Also taking a business rate hit is warehouse and logistics firms. These companies typically have to contend with heightened costs anyway due to larger space requirements, requiring more spending on heating and electricity.

Add to that the steepened business rates valuations, and accountants in the sector are in for a sizable shock.

Distribution and logistics properties have seen an average increase in their rateable values of approximately 35%.

Government ignores calls for more business rate support in Spring Budget

Those based in commercial premises with a rateable value of less than £15,000 can claim Small Business Rate Relief (SBRR). But non-qualifiers – an even bigger group following the rate rise on 1 April – must look at other ways to cushion the financial hit.

Ahead of the revaluation, business owners across the country expressed to Startups that they hoped the Spring Budget would include new support measures to help absorb the rate rise.

For example, raising the threshold for SBRR to £25,000 so that more companies would qualify for financial assistance.

Despite persistent lobbying from well-known organisations, no further help was announced. Higher rate bills are now expected to deal a significant blow to small business budgets.

How can offices use coworking spaces to limit overheads?

Signing up to a national coworking provider, for example Regus, is the simplest way to avoid paying thousands in business rates each year.

Business rates are not the only charges associated with owning or renting a commercial premises, however. Here are five other areas where coworking offices can save users money:

1. Utility fees. What energy crisis? Electricity and water costs are typically included in the rental price of the coworking space, saving a considerable amount.
2. Administrative costs. Many serviced offices provide administrative help, such as reception and mail services, meaning tenants can avoid hiring staff for these tasks.
3. Maintenance costs. Leased properties require the business to take care of all internal maintenance. Those who buy the premises are responsible for all upkeep.
4. Infrastructure fees. Renting from a large-scale provider means you won’t need to take on responsibility for necessary services like cleaning or security.
5. Day-to-day spending. Depending on the provider, tenants can access amenities like office equipment, WiFi, even tea and biscuits. Many firms have been forced to cut down on these perks due to the cost of living crisis.

Serviced offices also have much shorter rental contracts. Typically, a business must sign at least a three year lease to move into a property which makes it much harder to plan for unexpected costs like the business rate rise.

In comparison, businesses can sign for a shared workspace for any period of time ranging from an hour for a single meeting room, to a year for a fixed office space.

With hybrid working seeing more workers splitting their time between work and home, this is a good way to avoid wasting money on a full-time office space that is only being utilised two or three days a week.

Catering for flexible work is also vital in modern people management and recruitment. This year, the government’s new Flexible Working Bill will make it mandatory for companies to take flexible working requests from day one of an employee’s contract.

How to find coworking space in 2023

Research is the best way to gauge the financial savings that coworking spaces can bring – and evaluate whether they are worth the time and resources spent on relocating.

The below guides have more information on the shared office options available in the three largest UK cities:

• Best cheap coworking spaces in London
• Best coworking spaces in Birmingham
• Best coworking spaces in Manchester