The old saying of Location, Location, Location still holds an important role in a company’s key criteria when searching for an office space. However, the demand for hi-tech amenities is now a key factor behind many companies’ reasons for moving.
Each time tenants view commercial properties, they will be presented with a service charge – a cost that can vary significantly from case to case. Some properties can quote a service charge of £15 per sq. ft., whereas other offices spaces come with no service charge at all.
When the plans to build a second high-speed rail line from London to Manchester and Leeds – via Birmingham – were put forward six years ago, the impact of High Speed 2 (hereafter HS2) became a hotly debated topic. The project is estimated to cost £50 billion, and will provide around 25,000 jobs through its construction.
Start-up companies often require a unique set of circumstances in the property market. As companies without operational experience can have difficulty predicting what their future profit will be, they can have issues committing to a lease straight from a landlord. Some of the challenges the companies face could be 12 month deposit requirements, long lease periods or upfront costs for fit outs and other associated costs for office moves, all needed to invest in growth.
Over the last few weeks, there have been discussions that the central London office space market could be teetering at the top, about to turn. Eugene O’Sullivan, Managing Director at Morgan Pryce, said: “From Morgan Pryce’s perspective, this is mostly hot air. Even though it would certainly be a welcome Christmas gift for acquisition agents such as ourselves, many are getting over-excited at the first sight of a reverse premium. Still, there are no substantial grounds for believing this.”
The Centre of London and West End are areas assembled by appealing villages, which contribute to the unique atmosphere of these locations. This makes them desirable for corporate tenants, and consequently, rental prices are driven up. As a result of the increased rent, the independent business owners who give the location its specific character, are often driven out.
The serviced office market is the most active it has ever been, and the providers are jostling for their market share. The top spot is currently held by Regus Group, a privileged position which they secured by their recent merger with Avanta. Subsequently, Regus covered 250 locations across 50 cities in the UK in April this year. However, the Competition and Market Authority (CMA) has raised concerns that there may not be sufficient competition in the serviced office market due to Regus’ spread in the UK after the Avanta Merger.
One of the latest deals to be concluded at tenant acquisition specialists, Morgan Pryce, has shown the strength and rapid increase of London’s submarkets. The deal, at a newly developed warehouse style building in the heart of SE1, was finalised at £55psf – a figure that shows a strong increase compared with previous years. Indeed, over the last 12-18 months, there has been significant growth in areas such as Shoreditch, SE1 and Midtown, with rental levels increasing by 10-20%.
There has been much deliberation over the last few years on when inter-bank lending rates in the US are going to increase. It is looking likely 2016 will see a rise now that unemployment rates have dropped further in October 2015 to just 5%, the lowest level since April 2008 with job gains in occurring in professional and business services, health care, retail trade, food and drink services and construction.
Has central London’s office market reached the top of its cycle? That is the question all property professionals have been asking for the last 5 months. I personally believe we have plateaued at the top and the final few deals at these extortionate rents will be complete by the summer of 2016. As we begin to see some new stock in the market things should start to cool off. At least we at Morgan Pryce hope so!
Morgan Pryce delivers expertise in securing prime on and off market commercial properties across London and the UK. We guide and nurture your purchase from initiation though to legal completion.
