Business Rates in the Retail and Hospitality Sectors
Few sectors feel the weight of the business rates system more acutely than retail and hospitality. These industries depend on physical presence, face significant regional variation in rental values, and are highly sensitive to changes in consumer behaviour, location dynamics and occupancy costs. The combination of fixed property liabilities and volatile trading conditions has made business rates a defining issue for both operators and investors across the UK high street.
A Sector Disproportionately Exposed
Business rates are derived from the rateable value, an assessment of the property’s annual rental value at a fixed “antecedent valuation date” (AVD). For the 2023 rating list, that date is 1 April 2021: a period when pandemic restrictions were still distorting rents, particularly in city centres and leisure hubs. As a result, many retail and hospitality premises entered the 2023 list based on atypical rental evidence, creating both winners and losers depending on geography and property type.
High streets and secondary shopping parades in some towns have seen marked falls in rateable value compared to pre-pandemic levels, while destination retail and drive-to leisure sites have fared better. Conversely, prime city centre hospitality venues have often been reassessed at levels that no longer reflect subdued footfall and hybrid-working patterns.
Reliefs and Support Mechanisms
Retail and hospitality occupiers may benefit from a number of sector-specific reliefs. The key mechanisms include:
Retail, Hospitality and Leisure Relief (RHLR) - a temporary relief introduced in 2020 and extended through subsequent fiscal cycles, currently providing eligible premises with a 75% discount on business rates liability (subject to a cash cap).
Small Business Rate Relief (SBRR) - applicable to smaller hereditaments below certain rateable value thresholds, often allowing full or partial exemption.
Transitional Relief - caps annual increases in rates payable following a revaluation, preventing sudden cost shocks. While designed to protect ratepayers, transitional phasing can delay the full benefit of reductions where property values have fallen.
Material Change in Circumstances (MCC) - allows reassessment where external events, such as major infrastructure works, long-term access restrictions, or nearby redevelopment, materially impact trading potential.
Understanding eligibility, interaction and timing of these reliefs is critical. Many businesses miss opportunities due to the complex interplay between rateable value, property use classification, and temporary policy extensions.
Structural Shifts: The Challenge of Relevance
The rating system remains anchored to bricks-and-mortar premises, a challenge for a sector where digital integration and omnichannel retailing are redefining value creation. Hospitality operators, too, are facing evolving spatial economics: reduced commuter footfall, higher energy costs, and shifting demand toward experiential rather than volume-based models.
As a result, the rateable value captured at a historic AVD may not reflect current economic use or market rent. The move to more frequent revaluations (every three years) should improve responsiveness, but still lags behind the pace of structural change across these industries.
Emerging Trends and Future Reform
The Government’s ongoing review of the rating system has signalled moves toward greater data sharing, improved transparency, and more dynamic valuation cycles. However, the fundamental linkage between rateable value and rental evidence remains, and so does the requirement for occupiers to remain vigilant in ensuring that assessments accurately capture current conditions.
The 2026 revaluation, based on April 2024 rental evidence, is likely to reflect further adjustments in consumer patterns, hybrid working, and supply chain restructuring. For many retail and hospitality occupiers, this will be an opportunity to ensure that assessments are not inflated by outdated assumptions or transient anomalies in the rental market.
Conclusion
Business rates in the retail and hospitality sectors remain a complex balance between fiscal stability and market fairness. For operators, success lies in understanding how valuation evidence is derived, monitoring environmental and physical changes that could justify an MCC, and modelling the impact of transitional and sector-specific reliefs on future liabilities.
An informed, evidence-led approach is essential, one that integrates property, trading and policy insight to ensure liabilities accurately reflect operational reality.