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.