The effect of upward‐only rent reviews on UK prime retail property capital values

Purpose – The purpose of this paper is to consider the likely effect on capital values of prime retail property in major UK urban centres from any legislative ban of upward‐only rent reviews (UORRs) from commercial leases. Design/methodology/approach – The opinion of Leeds‐based valuers regarding changes to yield and rent following a hypothetical ban of UORRs was surveyed and the implied effect on capital values calculated. Rental valuation data were obtained for a portfolio of prime retail properties located in Leeds and its satellite commercial centres, forming a case study. The data were combined with survey responses to develop a valuation model to further consider, in an applied context, the effect on capital values as a result of prohibiting UORRs. The hypothesis tested is that, immediately following enactment, prohibition of UORRs will cause a reduction in capital values of prime retail property in major UK urban centres. Findings – The conclusion drawn from the research is that, based on contemporary professional opinion, the hypothesis is likely to be true though the extent of the reduction will vary as a function of specific lease and property characteristics. Research limitations/implications – The behaviour of valuers and the issue of subjectivity in valuation is a limitation of this positivist research. An alternative phenomenological approach, perhaps with structured interviews at its core, might produce alternative findings. Originality/value – This research attempts to quantify the effect on capital values on prime retail property following any ban of upwards only rent reviews, a subject that holds a high level of contemporary interest with all property stakeholders.