Landlords, who are already under pressure, face an extra tax bill of £150m ($297m) as a result of worsening occupancy rates, a new survey reckons.
The new empty buildings tax, announced last summer and effective this April, was expected to raise about £950m a year.
The tax was intended to prevent commercial property companies from leaving buildings vacant instead of putting them to practical use – for example, by helping to resolve a perceived housing shortage.
NB Real Estate, a consultancy, calculates that the proportion of void, or empty, buildings has risen by 15 per cent since the law was proposed. Vacancy rates across office, retail and industrial buildings now average 12.4 per cent.
That means the Treasury can expect an additional windfall of £142.5m, the group estimates.
The figure appears likely to increase as the commercial property industry sinks further into its worst downturn for 15 years.
The share prices of big developers have slumped under the effect of a toxic cocktail of rising yields, waning appetite from occupiers and a tightening of loans by banks.
The £1.1bn empty buildings tax will be yet another burden on the industry.
The report reckons the new tax’s impact on the property market will be distorting as the percentage of unlet space rises during the downturn.
“This empty rates tax was conceived when the property market was performing strongly but the downturn is heaping misery on misery,” says Andrew Warde, director of rating at NB Real Estate.
A Treasury source said it was wrong to presume it would get a windfall from rising vacancy rates.
Any extra money from the empty buildings tax would be more than offset by falling corporation tax from developers.