Business occupancy costs down but mainly due to greater office space efficiency

Apparently redundancies and greater space efficiencies have driven office costs down across the UK, but London's West End has proved to be the exception. The cost of providing office space for UK companies' staff fell during 2011 according to an occupancy cost survey by DTZ. In contrast they say that costs in the City of London were edged down 7.3%. Occupancy costs per workstation include rent, maintenance costs and property taxes. By looking at costs per workstation, the effects on statistical analysis of the different ways in which businesses use space have been reduced.

There were large regional variances, so in Birmingham, for example, costs were down some 11.5% and in Edinburgh costs were down 4.2% year-on-year. At the other end of the scale, London's West End is the most expensive business district in Europe, second only to Hong Kong. In the UK both Glasgow and Manchester saw increases in costs.

It is thought that where costs have fallen this has been largely due to greater efficiencies in the use of space. There has been a lot of corporate consolidation of space use going on generally with greater use of open plan offices, fewer meeting rooms etc. Karine Woodford, Head of Occupier Research at DTZ, said: "After a year of relative respite, cost-cutting has returned in a big way with occupiers awaiting developments in the eurozone and looking to reduce space per employee. Consolidation has been a theme across the country particularly within the banking and insurance sectors. They are increasingly seeking occupational densities of one person per eight square metres, down from 10 square metres seen previously."

Cost forecasts to 2016 are for positive growth across most markets in the USA, Asia Pacific and Europe.

So far as the serviced office market is concerned, it is the operators of serviced offices in London, for example, that will take responsibility to keeping overall costs down - leaving their tenants to focus on their core business without having to worry about issues such as property maintenance.

Problems with long office leases. The counter benefits of serviced offices in London.

Why are landlords so blinkered about meeting the needs of their tenants? In London part of the reason for this is that a large proportion of commercial properties belong to institutional investors and pension funds. The value of their property portfolios is directly linked to the security of the rental income and the length of the rental commitment from their tenants. If a property has one tenant on a 25 year lease then its capital value is substantially higher than it would be if the same property had ten tenants each on 5 year leases. Institutional investors and pension funds can’t afford to have their property portfolios down valued and so they can’t afford to offer shorter leases.

This is where London serviced office space stands to gain in the current economic climate. Abacus Office Finder has seen a substantial increase in demand over the past 12 months for serviced offices to let in London on short flexible lease terms. The rent per desk that their clients have been willing to pay has increased in line with this demand and rent, in some cases, has almost doubled if the office space is right and the location fits the business. One of the main attractions of a serviced office (ignoring the short lease commitment for a moment) is the flexibility that companies are offered by the serviced office operator. It’s possible to take an office initially for, say, five people but in six months time when perhaps there is an unexpected up, or down, turn in business a company can opt to move to a larger, or smaller, office - probably on the same corridor in the same building with minimum upheaval and no need to change stationary, business cards, telephone numbers etc. etc.

Recent research conducted by Lighthouse Global on behalf of Cushman Wakefield has revealed that despite wider economic woes, most occupiers are still focusing on growth and apparently 25% of occupiers believe that they will be working to a different office model within three years. This is largely linked to lease lengths and greater flexibility wanted by occupiers, so institutional and pension fund investors in commercial property should beware whereas serviced office operators can expect to reap the benefits of this shift in occupier thinking in the future.

London serviced office prices on the increase

Nearly a year ago Abacus Office Finder was predicting an increase in demand for serviced offices in London – were they right to be thinking ahead of the gloomy cloud that seemed to be hovering over the London office market? Needless to say it isn’t an easy question to answer, but in the last twelve months london serviced office rents have inceased substantially and so using a basic economic equation one would have to accept that if the price has gone up (but the supply hasn’t changed) then demand must have gone up too.

SME’s looking to expand or contract their business are ham-strung by conventional landlords. The keyword for any SME has to be ‘flexibility’, whether this has to do with their business offering or the structure of their business. The global recession has made it hard enough to trade at all without the unwelcome interference of outside influences, such as inflexible landlords of business premises. It has long been a personal frustration of mine that property often ends up driving business instead of being a servant to it.

Abacus Office Finder have recently worked with a number of clients who made decisions to expand or contract their businesses into new offices, only to find that their current landlords wouldn’t release them from their existing commitments. In each case they were forced to ride out their leases of inappropriate office space, to the detriment of their business, before they were able to implement their future plans.

With even more journalistic comment about a double dip recession looming, businesses are certainly reluctant to branch out into new offices with so much uncertainty ahead. Taking a lease on a conventional office isn’t for the fainthearted seeing as many conventional landlords want you to sign a 10, 15 or even 20 year lease.

At the risk of sounding rather simplistic, there is a very straight forward answer - use a serviced office! Everything is laid out and ready of a new occupier, lease agreements are often on one or two sides of A4, lease terms can be as short or long as you like and if you need to expand or contract in a few months time you can just move to another office withing the same building without needing to change your stationery or anything else.

Demand for Serviced Offices in London Rises

Could this be what we've been waiting for?
Let’s face it, there’s not been much news to cheer us in the world the past couple of years. Certainly the commercial property market hasn’t been the place we’ve looked if we’ve needed an injection of positive thinking for a very long time!

Well at last there seems to be a glimmer of hope at the end of that very long tunnel. Over the past 30 years operating in the commercial property market here in London I know that I have to plead guilty to having been too much of an optimist in a declining market, and a "Doubting Thomas" in a recovering market. So if you hear me talking positively about a recovery then you should either be shocked or at least sit up and take notice.

The Past
The interesting thing about the serviced office market, in particular, is that over the past two economic slumps we have seen the early signs of economic recovery before anyone else.

Why is this? Well it’s pretty simple really – in the UK the conventional office market has been dominated by institutional landlords who have insisted on very long leases (they used to require 25yrs but this has now reduced to 10-15yrs). As a result, any business decision to open a new office, or to relocate, couldn’t be taken lightly because you were making a significant financial commitment for the next 10-15 years - and no door with a crash bar and illuminated sign saying “this way out”.

Because serviced offices involve no capital outlay, and only a short term commitment, they were a very attractive option in uncertain times and so we saw demand increase well ahead of any clear economic indicators that the recession was over.

The Present
Over the past six weeks we’ve been running a straw poll survey on our website. We’ve asked just one question of all our visitors: “Is there light at the end of the tunnel?”

Here are the results so far:


Ok, I know it’s not very scientific and I don’t exactly hear any champagne corks popping just yet, but whilst I’m still inclined to be a sceptic, there is absolutely no denying that levels of demand for serviced offices, especially serviced offices in London, have increased substantially over the past month or two. The quality of enquiries is higher, the size of those requirements are larger and the budgets that occupiers have in mind are more realistic.

It’s definitely too early to be able to draw any clear picture of the different motivators that are driving the increased demand, but the facts are there for us to see and, personally, I think it’s all about increased levels of business confidence – if I'm right then what we are seeing are the familiar signs of a sleepy but waking economy.

Here at Abacus Office Finder we have all the serviced offices London has to offer on our books. From big to small, cheap to expensive, high profile to back office and new to old. Among other locations, we have Mayfair serviced offices at surprisingly competitive prices and an unusually large selection of serviced offices in the City of London at the moment - a good time to be negotiating on price maybe!

London Rental Values - the increase in conventional office rents has left serviced offices looking exceptionally good value.

It’s not just shares and commodities that have been enjoying rises in the last couple of years – commercial property has also been in recovery mode. Fund managers are feeling a lot more confident about the outlook. The UK commercial property market has experienced a remarkable polarisation post the financial crisis. At its worst point the asset class had fallen some 44% – an unparalleled event and worse than the early 1990s. Since the low point about eighteen months ago, there has been a recovery in prices as buyers return to the market but most of this activity has been confined to the very top or prime end of the market.

As a result of keen interest from foreign investors and sovereign wealth funds, ‘trophy’ properties have been bid up to the extent that they are now back to, or have exceeded, 2007 prices, driving some rental yields down below 4%. West End London offices are a good example; values have soared and rents are probably double where they were just a few years ago. In contrast, the prices of property perceived to be less glamorous have remained virtually unchanged, with risk-averse investors avoiding this secondary part of the market, despite the extraordinary high yields of close to double digits. So, unlike the equity markets, there has been no ‘dash for trash’ whereby investors have been happy to snap up distressed but fundamentally sound companies again.

The really interesting thing about the rental position right now is that whilst conventional office rents may have doubled in value, serviced office rents have remained at their low levels with no real prospect of any change in the immediate future. As a result, the differential between the two is huge and serviced offices are looking exceptionally good value at the moment.

Abacus Real Estate have a good stock of serviced offices to rent in London, particularly in the City of London, Mayfair, Covent Garden, Oxford Circus and Victoria.

Bruntwood office portfolio increases in value but profits decline.

In its annual results, the family owned commercial property company, revealed a 4% increase in the value of its office portfolio to £948m in 2010 compared to 2009. However, net profit declined by 11% to £11.1m compared to £12.5m in 2009.

There was a 28% increase in new lettings across its office portfolio in Manchester, Liverpool, Leeds and Birmingham, and turnover was up 3% to £100.2m.

The company also reported a 3.2% increase in its net worth to £310m over the same period.

Bruntwood’s chief executive, Chris Oglesby, said: “Despite a tough market and stiff competition, we have delivered a very impressive increase in new lettings with a record year in Greater Manchester and continued success in our other three cities, Birmingham, Leeds and Liverpool, where we have attracted significant new occupiers.

“Although the market appears to be awash with bargains at the moment, on closer scrutiny, there is very little stock offering value of any quality.”

Abacus Office Finder are pleased to be able to offer serviced offices owned by Bruntwood Business Centres Ltd in the following locations: Altringham, Cheadle Hulme, Knutsford, Warrington, Manchester, Liverpool, Birmingham and Leeds.


Read more: http://www.propertyweek.com/news/news-by-sector/offices/bruntwood-office-portfolio-increases-in-value-but-profits-decline/5012854.article#ixzz1CzRIakT9

Hong Kong's prime office market is looking strong according to a report from Knight Frank.

Hong Kong’s office leasing market was quiet in the traditionally low season of December, with many decision-making senior executives having left on vacation.

However, activity is expected to recover swiftly after the holidays, as the corporate sector has displayed strong intention to expand and leasing demand remains robust.

There were few headline-grabbing leasing deals in December and most transactions involved renewals, or relatively small buildings or floor plates. Value Partners committed to a mid-floor unit in Nexxus Building in Central, while AMTD Strategic Capital leased another in World Trade Centre in Causeway Bay.

Capitol Int’l leased two low-floor units in Infinitus Plaza (previously known as Vicwood Plaza) in Sheung Wan.

Abacus Real Estate are currently offering a range serviced offices in most areas of Hong Kong.