Cluttons LLP - General Other - UK
Date: 07 Aug 2008
The Chartered Institute of Purchasing and Supply has reported that manufacturing activity fell in July for the third month in a row, and at the fastest pace in nearly a decade. Its headline index of manufacturing activity fell to 44.3 in July, down from 45.9 in June, its lowest reading since December 1998. According to reports any figure under 50 suggests that the sector is shrinking, while analysts are reported as saying that the decrease in the index for new orders, which fell to 40.5 from 43.7, indicated worse to come.
"This data is worrying for both the economy as a whole and the property market in general", comments Peter Chapman, head of rating at Cluttons LLP. "Any squeeze on margins could see some manufacturers potentially scale back manufacturing, which is likely to see factories closed down and compulsory redundancies. Neither outcome is good for the commercial or residential property market either through an oversupply of industrial space putting downward pressure on rents or in the case of redundancies likely to lead to house repossessions."
However, in a strange twist, the Government's introduction of the new Rating Bill and it's additional rates charge on empty property is likely to have a further significant impact on manufacturing.
"Rates on empty business premises came into force on April 1, 2008", continues Chapman. "The Government's stated position in introducing the Bill was that its introduction would stimulate redevelopment and bring empty property back into use. Whilst previously empty industrial property was granted 100% relief and all other commercial property received 50% relief following an initial three months exemption, the new charge will introduce a significant additional financial burden on owners who have empty property, with the hardest hit being Industrial owners who from April 1, will have to pay a 100% rate charge having previously paid nothing at all on their empty premises."
Although the new charge still allows relief for the first six months on industrial premises and three months for all other commercial property (it will not be available in relation to existing vacant buildings) the removal of relief thereafter will introduce a significant additional financial burden on owners especially owners of industrial property and as Peter Chapman says, "Whilst the Rating Bill was supposed to bring back into use empty buildings on brownfield sites, it would now be ironic that at a time when many manufacturing businesses are struggling, the new charge is the very catalyst that tips some companies over the edge and into administration, so leaving more business premises empty."
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