Enterprise zones could have negative impact

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News article

Enterprise Zones could have a negative impact

July 2011

commercial news

Enterprise zones (EZs) are making a comeback, much to the dismay of many a commercial

The UK Treasury is making £100m available to fund 11 new EZs over the next four years, according to Chancellor George Osborne, and a further 10 EZs will be created in the future. While the new EZs will be set up in areas that already have local enterprise partnerships, their exact locations are still not certain.

EZs are not a new phenomenon – over 38 were created between 1981 and 1996. The zones bring with them tax breaks, capital allowances and simplified planning rules and this round will see funding for super fast broadband. More importantly, EZs can occupy buildings business rates
free until the end of the 10 year EZ status.

Worrying implications

EZs create significant physical development in areas identified in need of regeneration. However, they tend to attract some of the largest of the country’s commercial property developers and there is a strong argument that EZs are of more benefit to the developer and the landowner
than to local business.

It is sometimes said that EZs drain occupation from surrounding areas into the zones. In order for a business to qualify for an EZ it usually has to relocate from a different county or local authority.
However, if county or local authority borders are close by, the move may only be a few miles in some instances. Where this happens the implications for Fisher German clients could be severe.

Landlords left with falling values

Large production facilities or distribution centres are not the only businesses attracted to EZs. Many developers quickly latch onto the EZ status of land and look to acquire parcels for speculative development.

This can have a number of repercussions, including landlords offering tenants rental discounts, rent free periods or reverse premiums to entice an existing tenant to renew a lease. Landlords of vacant properties are then faced with heavily incentivised competition that they simply cannot compete with.

All of the above can lead to a general fall in rental and capital values in areas that are close enough for local occupiers to consider a move to an EZ.

Vacant buildings

When occupiers move into a building with an EZ status to take advantage of its financial benefits, landlords are often left with vacant buildings and the prospect of long term issues over voids and falling values. In the current climate, business rates will also add significantly to the costs associated with vacant buildings.

The effect on areas surrounding EZs will have to be considered, even though the £100m budget for the first wave of EZs is more modest than the budgets for the previously created EZs. Fisher German has experience of occupiers playing off a landlord in a non- EZ area against a landlord within an EZ and can advise clients on such a situation.

The new EZs are not necessarily in towns and cities that have seen closures of coal mines and manufacturing loss as per the last round of EZs. In fact, they are likely to include London, Sheffield, Nottingham, Manchester, Leeds, Liverpool and Birmingham.

If your nearest EZ sees substantial speculative development you should take action now to negate its potential impact on your property holding.

For further information, please contact Kevin Benson on 01777 719148 or email kevin.benson@fishergerman.co.uk

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