UK SMEs need more space to grow, new report finds

Entrepreneurs and innovative small businesses are playing an increasingly important role in our local economies and communities – but they are disproportionately struggling to get access to the space they need to flourish and grow, a new report has concluded.

While the demand for affordable retail and office space is increasing, so is the number of commercial spaces lying empty, with permanent vacancy rates across the UK at an average of 5.2 per cent, peaking in the North East at 8.4 per cent.

But Access to Space, a new report from small business support platform and membership organisation Enterprise Nation and entrepreneur think tank The Entrepreneurs' Network, found small firms are being disadvantaged by a distorted market which both favours residential development over commercial and incentivises landlords to keep properties empty.

The report argues that community-based entrepreneurs with a proven, sustainable track record and a strong business case, should be allowed to assume ownership of dilapidated buildings within their vicinity for the good of the local community. This could see decaying local landmark buildings transformed into vibrant independent markets, street food venues, coworking spaces and pop-up shops.

Emma Jones, CBE, founder of Enterprise Nation, said: "Access to the right kind of space is vital if entrepreneurs are to thrive in the current climate.

"While it may sound counterintuitive to extol the virtues of space at a time when one-quarter of retail sales are taking place online, this report demonstrates the very real need for founders to have access to a physical space to grow their business. Whether that be a shop, a café or an office, physical spaces facilitate collaboration, networking and being part of a local community. Access to affordable and accessible work and trading space is critical for entrepreneurs of all stages."

Business rates reform

The report argues that despite successful attempts to improve access to space and revive economies with initiatives such as Business Improvement Districts, the Portas Review of 2011, the £675 million Future High Streets Fund, the £3.6 billion Towns Fund, and the Levelling Up Fund, which allocated £4.8 billion to local authorities in England for infrastructure projects that promote economic growth and regeneration, business rates remain the elephant in the room.

Philip Salter, founder of The Entrepreneurs Network said: "As 'Generation Rent' knows only too well, places with high demand have more expensive housing – while it's not discussed as much, the same goes for commercial properties. But an understandable focus on solving the UK's shortage of residential properties has created an unintended tax advantage to convert commercial property to residential, leaving entrepreneurs without access to affordable spaces in the right place.

"This report creates a strong argument to take a fresh approach to business rates, speed up publication of the details around High Street Compulsory Auctions (HSCA) and consider ideas like swapping the Empty Property Relief for a Commercial Vacancy Tax on landlords."

Coworking spaces

Coworking spaces are often more flexible and affordable than traditional office spaces, and so are popular among freelancers, entrepreneurs, and small businesses. There is often an element of community built into the proposition.

While many coworking spaces struggled during the pandemic, demand grew by 22 per cent in 2022, with regional growth particularly strong in northern cities like Leeds and Manchester. The report found that if local authorities had control over business rates exemption, strategic rate cuts could be enough to convince a private sector provider to expand. It could help drive the regeneration of a high street. In addition, there's potential for central and local government, as well as its arms-length bodies, to work with established coworking partners to set up places within their property portfolio.

Pop-up shops and markets

Over recent years, markets have experienced a renaissance. Even through the pandemic, the number of businesses in the food markets industry in the UK has grown 2 per cent per year on average over the last five years. Pop-up shops have become increasingly popular in the UK, and many cities now have dedicated spaces and events for pop-up shops, such as Boxpark in London and the Trinity Leeds Shopping Centre. Many businesses see short-term retail as a way to increase brand awareness and create an engaged community.

Pop-up shops are also a way large firms can be collaborative and supportive of smaller businesses – for example, in 2019 Amazon joined forces with Enterprise Nation to give 100 small online businesses the opportunity to trade in a physical retail setting and last month Adobe Express partnered with Enterprise Nation to support 20 small businesses pop-up on Oxford Street.

Trade show space

Commercial space also includes trade show attendance, and the report argues that if the Department for Business and Trade's feasibility study for a UK Tradeshow Programme is favourable, it should be expanded.

In the past, UK businesses that were already exporting or thinking about exporting could apply for support to exhibit at or attend approved overseas trade shows and conferences, and potentially receive grants to cover some costs. All successful applicants received training on how to successfully exhibit, while some businesses also received a grant of either £2,000 or £4,000 as financial support.

Businesses had to be turning over between £250,000 and £5 million. A full evaluation of the Programme will be undertaken, and this will help to inform what future support is made available. If the evaluation suggests the programme proves to be value for money, it should be expanded, including a trial and evaluation of supporting high-potential businesses with lower turnovers.

The Access to Spaces report recommends:

• Enhancing the Localism Act 2011, by granting greater authority to community organisations that have proven their long-term sustainability and presented a strong business case for assuming ownership of dilapidated buildings within their vicinity.

• Scrap and replace the business rates system with a tax on the underlying land values, not productive investment. As has been argued by many economists, a more efficient system would see the business rates system scrapped and replaced with a tax on the underlying land values, not productive investment. For example, the proposed Commercial Landowner Levy would cut business taxes in the vast majority (92%) of local authorities – particularly outside the South East – helping to rebalance Britain's divided economy.

• Scrap Empty Property Relief to incentivise landlords to let vacant properties;

• A new levy on commercial-to-residential transfers should be introduced to discourage tax-motivated shifts from commercial to residential property;

• Central and local government, as well as arms-length bodies, should work with established co-working partners to set up places within their property portfolio;

• If the evaluation suggests the UK Tradeshow Programme proves to be value for money, it should be expanded, including a trial and evaluation of supporting high-potential businesses with lower turnovers.

By Liz Slee

Liz Slee is the head of media for small business support platform Enterprise Nation. A former journalist with a background in policy and public affairs, Liz focuses on keeping small businesses and start-ups front and centre of the broader media and policy agenda. That means telling the very real and brilliant stories about the UK's small business community and the work Enterprise Nation and its partners do to support them. She occasionally contributes to International Business Times UK.