Hotel operators have a real opportunity to appeal against their business rates, given that new “disruptors” in the hotel business, who don’t pay business rates, are having a massive impact on the market, according to Colliers International, the global commercial real estate agency and consultancy.
According to Colliers the rise in volume of Airbnb lettings should be seen as a “material change” to the hotel industry. The Valuation Office Agency, who undertakes business rates appeals, normally looks favourably on businesses that can show a “material change in their circumstances” and by definition Colliers believes hotels in areas where Airbnb is strong and growing should be included in this policy.
Currently, hotel operators are suffering from a massive increase in the business rates that they are liable to pay following the recent April 2017 revaluation. For example, one hotel in Belgravia is seeing an increase of nearly 194% in its rateable value from the last valuation in 2010, and two hotels in Victoria are seeing rises of over 150%. This is not a trend in the West End alone, with Hotel Z and Fielding Hotel in WC2 seeing rises averaging 114%. (See table below.)
And they are also competing against new entrants into the marketplace such as Airbnb, who acts like a hotel provider to let out rooms, but because of loopholes in rating legislation is able to avoid paying business rates.
“This is just not a level playing field, ” says John Webber, Head of Rating at Colliers International. ” Not only is Airbnb attacking hotel market share, by offering cheaper room rates, but is able to do this through the unfair advantage of not paying business rates.”
Webber continued, “The quantity of additional rooms being made available by Airbnb is equivalent to the building of several hundred new hotels across the UK. Yet should these hotels have been built, the Valuation Office Agency ((VOA) would accept “a material change of circumstance” to the hotel operators’ business.”
Webber backs up his argument with strong research about the rise of Airbnb – recent figures from Colliers International and Hotelschool in The Hague has shown that nights booked with Airbnb in London rose 130 percent in 2016 reaching 4.62 million, (compared to just over 2 million in 2015) with market share of overnight visitors doubling to 9%. The trend looks likely to continue with the number of properties listed in 2017 increasing by 80% year on year and the first four months of the year showing an additional 55% uplift in the number of nights booked through Airbnb compared to the same period in 2016.
In addition, of the 2016 listings, almost 54% were offered by hosts with more than one listing, up from 48% the year before, reinforcing concerns about professional lettings via the site. “Airbnb seems to be no longer an accommodation site for individuals letting out their own homes, but people are buying residential properties specifically for Airbnb and running these as businesses”.
Bookings in the boroughs of Westminster, Tower Hamlets, Kensington, Chelsea and Hackney accounted for nearly 50% of all Airbnb stays last year. So, Webber feels hotels in these areas of London in particular should take note, and begin appeals against their rate bills, as should hotel operators in other cities such as Oxford and Bath that attract tourists and hence Airbnb operators.
“We would argue that the advance of Airbnb rooms let in close proximity is a “material change” and hotel operators should appeal their rateable value and hence their rates bill, before they take a financial turn for the worse, which would affect both profits and jobs in the trade.”
Webber continued, “This is yet another example of how the current business rate regime is out of date and needs root and branch reform. Everyone quotes the financial advantage Amazon has over traditional retailers, by not paying business rates, but the hotel industry is similarly affected. Hoteliers need to fight back and point out “the material change” created by operators such as Airbnb, and get their rating bills under control. “
Colliers Manifesto for Business Rates Reform includes:
1. More frequent revaluations, three-yearly, at least, by 2022;
2. Increase funding for VOA in order to deal with existing appeals’ backlog;
3. Release VOA from pressure exerted by local councils and HM Treasury;
4. Introduce a register of appeals professionals – removing the ‘cowboy’ element;
5. Root and branch reform of current business rates exemptions and reliefs.