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.

Encouraging news from Executive Offices Group about a market recovery.

Last week's contracting GDP figures and gloomy economic predictions were disappointing for industry to say the least. However Executive Office Group's own experience points to a different, much more positive outlook and with results from the serviced office sector traditionally seen as a precursor to future economic conditions, this could be good news for the wider economy.

EOG's Q4 results further the overall growth recorded in the serviced office sector over the course of 2010 - their wider customer base grew by 20%. In the past week alone, in which healthy levels of banking bonuses marked a renewed confidence in the financial sector, they recorded their largest number of office viewings and general enquiries since 2008; over 70% of which came from individuals and start-ups operating in the financial sector.

John Drover from EOG suggests that the message to industry in the context of serviced office performance is that there is light at the end of the tunnel. With entrepreneurship and start-ups critical to economic growth, the indication emerging from this implies that there are reasons to be cheerful as we move through Q1 2011.

Let's hope............

Demand remains surprisingly strong for serviced offices in England's capital city

Demand remains surprisingly strong for serviced offices in England's capital city.
Despite the worst economic climate in most people's living memory, there is still suprisingly strong interest in serviced offices in the City and West End. There's no denying that rents have fallen substantially but, at the right price, many companies are seeing the good common sense of moving into serviced offices rather than signing lengthy conventional leases. In these uncertain times, many companies really don't want to be tied into long leases on fixed amounts of office space which will inevitably be the wrong size for them before the end of the lease. By using serviced offices they are able only to take the amount of space they need right now, knowing that when they need to take on more staff, or maybe contract their workforce, they can simply move into a larger or smaller office within the same building - no change of address, no painful search for new premises etc. In most cases these moves can be arranged over a weekend - go home on Friday and return to your new office on Monday with everything in place for you to get on with what matters most - your own business.