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Beginning April 1, the government ended its policy of granting long-term tax relief to owners of empty commercial buildings, saying the tax exemptions cost £1.3 billion ($2.56 billion) in lost revenue last year.

The move is likely to hurt owners of industrial property the most because the increase in taxes is sharper for that sector than for others. Meanwhile, the impact on rents from the change is being debated.

Some owners say rents will rise because the taxes will curb speculative development and encourage owners to raze empty buildings that they might otherwise rent. But analysts believe many owners may rent properties at a discount in order to avoid paying taxes.

The rule change "may lead to forced sales or lettings [rentals] at much lower prices," said Harm Meijer, a property analyst at J.P. Morgan Chase in London. "Both are now unwelcome in the current uncertain property climate."

Business-property-tax rates in England are set at about 46% of the assessed value of the market rent for the property, which is updated every five years.

In the past, owners of empty commercial buildings were exempt from paying business taxes for the first three months a building was empty; after that, they were required to pay half the rate. Now, in England and Wales, after the three-month grace period, owners must pay the full rate.

Owners of industrial property, which formerly paid no tax on vacant properties, now must pay the full rate, following a six-month tax-free period.

The government says the new policy will push landlords to rent empty properties, helping reduce the country's high rents. According to the King Sturge Global and Industrial Office Rents Survey of about 90 global cities, London was the most expensive city in the world in which to occupy office space at the end of 2007, with average rent in the West End costing £112.50, or about $222, per square foot per year. Manchester, Bristol, Leeds and Birmingham all were in the top 20.

The change in the tax regulation is aimed at eliminating "the perverse incentive" in the old policy for owners to keep their properties empty, said a spokeswoman for the Department of Communities and Local Government.

Property owners challenge the government's position, saying some landlords might destroy older buildings slated for redevelopment instead of trying to find short-term tenants. "It will take some of the marginal space out of the market so that there will be less opportunity for economic space to lease up on a short-term basis," said James Petit, head of investment management in London for RREEF Real Estate, a unit of Deutsche Bank AG.

Industrial landlords will be hardest hit because they have to pay full rates after they had been paying none, analysts said. Vacancy rates for industrial space in the United Kingdom at the end of 2007 were 10.6%, compared with 10.3% for office space and 4.8% for retail properties, according to Investment Property Databank Ltd.'s quarterly survey of property funds.

Real-estate investment trust Brixton PLC said it will pay an additional £5 million in taxes this year because of the change, which is the equivalent of 7% of its 2007 rental income.

Steven Owen, deputy chief executive at Brixton, said the idea that increasing taxes will lead to lower rents is flawed. "We don't deliberately withhold space from the market," he said. In fact, Brixton, which has about a 15% vacancy rate, will eventually pass the increased cost on to tenants in the form of higher rents, he said. "The upshot is that rents will increase because of this," he said, though "in the short term there will be a hit to our earnings."

In general, the rents for second-tier properties most likely will drop sharply, analysts said. Some properties are difficult to rent, particularly given the credit crunch, said David Parker, head of rating at Savills PLC in London. "I think there will be a polarization of the market, with very low rents on the older, less attractive buildings," he said.