For the past few years, companies looking to rent office space in London have been pushed to the outskirts of the capital by high prices and low availability. This trend is set to worsen as businesses get forced out of Zone 1 and face rents for the Outer London area which are reaching a 15-year high.
A survey by property services provider CBRE showed that the price of offices around the M25 rose by one percent just in the month of September 2015, the fastest rate since July 2000 when it reached 1.4 percent.
The increase is just a spike in the fast rise of rent prices for the Outer London area, which have risen by 4.2 percent since January 2015. Emma Jackson, associate director at CBRE, said that this growth is due to the fact that office space is running out even in the ‘donut’, as more and more companies are pushed out of Zone 1 by the lack of available or realistic rentals.
Office-to-residential permitted development rights are now permanent
Crane hire experts Emerson Crane Hire has reported in its blog that cranes are usually a positive sign of a thriving economy. However, it also points out that it is commercial property density that helps the economy by increasing productivity.
At the moment, numerous residential developments are taking place from Nine Elms to the Greenwich Peninsula. Thanks to a recent government decision, there could be plenty more on the way and the outlook for commercial property is far from positive.
The government’s decision to make office-to-residential permitted development rights permanent has further exacerbated the issues surrounding office space in London. After all, if property owners decide to convert their offices into residential property, not only will there be fewer offices, but as supply and demand dictates, the remaining office space will become more expensive.
According to Nicky Gavron, Labour’s London Assembly planning spokesperson, “at least 322 fully occupied office spaces across London have been earmarked for conversion in just the two and a half years since the policy trial was introduced”.
The emergence of professional vacant property security companies has made office-to-residential conversions much more financially friendly, and thus tempting, for property owners. For example, Oaksure Property Protection achieved a business rates reduction of £77,000 to £5,300 per annum and saved its client £95,600 on building tax when a planning application to convert to luxury flats was drawn out for more than 16 months.
The future of office space in London
In the past few years, many large companies have had to move to other UK locations. Back in March 2015, HSBC announced that it would move headquarters to Birmingham.
The BBC has slowly moved its operations over the past few years, with more than half of its staff now working in Salford. Several other major companies said that they would rather open branches in Greater Manchester than expand in London, as costs for the latter are too high.
As international businesses are priced out of London, it seems hard to imagine that renting in the capital is still possible. However, with flexible office space solutions it is still achievable.
A 2014 special interest paper by the City of London Corporation said that “agile occupiers are not necessarily growing small and medium enterprises, although some are. Neither are they necessarily startups. They might be long-established businesses that remain small and stable and choose serviced offices in preference to the conventional leasing market.”
Some companies with flexible needs have given up office space altogether, choosing hot desking and flexible working spaces. “They are the latest incarnation of serviced offices or office 'hotelling',” said Alexi Marmot, professor of facility and environment management at University College London. “Expensive, inflexible and long leases for corporate offices are no longer essential and indeed seem increasingly questionable, particularly if the occupants in any case don’t like working there.”
Over the next 15 years it seems we will see further flux in office space trends, more focus on flexible office space solutions and less use of fixed office spaces for businesses.
This article was written by i2 Office