In May 2023, representatives from Business Stream and Yorkshire Water published an independent report by Environmental Insight (EI) on possible options to reduce the number of vacant properties in the non-household market. The report was informed by an industry-wide consultation commissioned as part of the Market Improvement Fund (MIF) project‘Business vacants research to inform optimum market outcomes’.

We spoke with Matthew Rix, Wholesale Market Services Manager at Yorkshire Water, and Paul Baker, Wholesale Service Manager at Business Stream to find out how the project went and what we can expect next.

What were the main successes or conclusions drawn from this project - did it achieve what it was set out to do?

Matt: “We set out to achieve three main objectives: to assess whether the market is delivering efficient outcomes in respect of vacants and voids; to seek external evidence of what the true vacancy rate is and how this varies by region; and finally to identify reform options to improve efficiency in the market. 

The true vacancy rate of non-household premises is key to understanding whether the market is delivering efficient outcomes. Economic Insight conducted a detailed data review including information requests to multiple Local Authorities - the most comprehensive review of vacancy levels ever conducted (at least that I’m aware of). We believe that similar to market data, there are likely to be inaccuracies within Local Authority data, therefore, this external view is not perfect - however it does provide insight on regional differences. Two clear reform options were identified: reducing marginal costs of managing vacant premises and establishing a bad debt sharing mechanism.”

Paul: “The main finding from the research was that the current approaches being taken are generally on the right track and that no radical changes are required. The market is already working at an efficient level and actions and approaches are broadly in proportion to the issue. We need to keep working to reduce vacants and improve our performance but the key message is evolution not revolution.

This is a successful outcome in terms of what we were setting out to achieve, i.e., to identify whether there is a problem in the market regarding false vacancies. The timing of the project was intended to input into the PR24 draft methodology. Unfortunately, there was a delay in getting the signed agreement and funding which meant we missed the opportunity to provide this input. This could have been a problem if the findings were that a more radical change was required across the market, but fortunately they showed that we just need to keep on driving improvements in the way we are doing now.”

Were there any findings that were particularly unexpected?

Matt: “The quality of Local Authority data was unknown, and I expected it to be excellent, so it was disappointing to discover that data quality varied by region. Other findings were more in line with what I expected, such as the regional differences in true vacancy levels, which reflect demographic and economic factors. This has already been researched, documented and proven for household premises. The regional differences in non-household vacancy levels have never been evidenced before so this is valuable information for the market.”

Paul: “Perhaps the most surprising finding was that the revenue impact to the market of false vacants was less than expected – estimated to be around £12m per annum, equivalent to approximately 0.4% of annual retail market revenue or around 0.7% of average annual customer bills. This is useful context when looking at vacants compared to other data issues impacting the market.

Other findings were very useful to provide an independent view on areas where there differing views across market – to dispel or validate assumptions and assertions.  This includes areas such as the effectiveness and fairness of fixed charges on vacant premises (with the finding that this should not be taken forward as a recommendation); regional variation in true vacancy levels (and therefore that is unfair to apply a single target to the market); and the levels of vacancy since market opening (found not to be material).”

What's next for this project? How do you hope that the findings of this report are used?

Matt: "There are several ways that trading parties and Ofwat could use this information. MOSL is currently reviewing the Vacancy Challenge Process – the key piece of insight from the project is that any changes to market processes need to be primarily focused on bringing down marginal costs to trading parties. 

MOSL is leading the reform of the Market Performance Framework (MPF) and it is possible that vacancy percentage levels could feature in this. Vacancy levels are currently tracked through MOSL’s Holistic Dashboard and evidence of regional differences on true vacancy levels suggest that a national target is not appropriate for trading parties. If a vacancy performance target is set, then it should consider regional factors, which is how exactly targets were set by Ofwat for household voids at PR19. Wholesalers are currently preparing their PR24 plans, and the report should provide insight on companies’ future plans and strategy in vacancy management. Ofwat also seemed interested in the output of the plans so it is possible it may inform future regulatory policy."

Paul: “Because the findings were that the market already appears to be operating at an efficient level, a key message is to continue and build on the existing practices and approaches to tackle false vacants - namely focusing on vacants with consumption and reviewing long term vacant premises and data cleanse activities to identify and remove ineligible premises. Collaboration between retailers and wholesalers is key but through our own experience this is already well established and is working overall. We need to maintain focus and improve where we can.”

You can find out more on the progress of all MIF projects via the project update page.

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