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.
