Kames Property Income fund co-manager Richard Peacock has warned the upcoming revaluation of UK business rates will hit central London properties the hardest.
This year’s rates revaluation, which is due to come into effect on 1 April 2017, aims at valuing rates paid by a property’s occupier or landlords on empty commercial properties.
Central London locations such as the city and West End are expected to see average increases in rateable values of approximately 20 per cent while London’s more fashionable Shoreditch and Kings Cross areas will be hit much harder, says Peacock.
He says: “Increased rates bills at a time when rental levels are at record levels mean total occupancy costs for central London office tenants have never been higher.
“This will dampen tenant demand and put downward pressure on an already well advanced rental cycle which heightens the risk of rental value falls.”
However, Peacock, who manages the fund alongside existing co-manager and property investment director David Wise, argues the rates revaluations are more likely to increase the attractiveness for regional and secondary properties, which are recovering to the levels witnessed in 2008.
He says: “The rates revaluation is less likely to depress demand in regional areas and for office occupiers looking to relocate, regional locations look even better value, so we expect the process of decentralisation and northshoring out of London to continue.”
Peacock just joined Kames Capital in January as co-manager on the £455m fund, following the departure of Alex Walker, who left the firm in December.
The Kames Property Income fund aims to provide income and capital growth by investing in commercial property.
While the fund was unusual in remaining open following the Brexit vote, it was the worst hit in the three months following Brexit, according to analysis by Hargreaves Lansdown, with a loss of 8.8 per cent over the period.
Since launch in March 2014, the fund has returned 20.54 per cent compared to the Sterling Property sector average return of 12.02 per cent, according to Lipper.