Are serviced offices set to dominate the London occupational market?

It is the topic of conversation among West End and City office agents: are they embracing change?

The growth of London serviced offices has become a hot topic. Over recent years, the sector has expanded rapidly. It has evolved from a market once dominated by start-ups needing little more than a postal address to a mature, thriving industry. Today, the UK leads the global serviced office market. London serviced offices account for 34% of the UK footprint and have grown 31% since 2008.

For the first half of 2017, the sector accounted for 9% of take-up in the City and 8% in the West End. Tenants are increasingly willing to pay the ‘premium’ rents associated with serviced offices. In return, they gain greater flexibility and the advantages of fixed costs without the risks of a conventional lease.

Flexibility and minimal start-up costs are key factors, especially for smaller occupiers. But these are not the only reasons for growth. Larger occupiers are also attracted to co-working and serviced offices. These spaces offer opportunities to collaborate with creative companies and access a growing talent pool.

We do not view the sector as a threat. On the contrary, its fluidity and flexibility complement the traditional leasing model. This gives tenant clients more choice. We have embraced the sector and are assisting major operators with ambitious growth plans.

Recently, we advised Prospect Business Centres on acquiring approximately 17,000 sq ft at 20 Midtown on Proctor Street, WC1. Prospect identified Midtown as an area of interest. After finding 20 Midtown as an ideal building, we negotiated terms on their behalf. They will soon open their first Midtown centre.

Some landlords worry about covenant strength. Most operators take leases in a special purpose vehicle (SPV) with additional surety, often a limited parent company guarantee. Long gone are the days of Ouvagh Highfield and Southern Cross. Operator failures are rare today.

Operators are increasingly willing to sign long-term leases. In fact, most prefer a minimum term of ten years. The message is clear: whether acting for landlords or tenants, larger firms and corporates must adapt to the ever-changing occupational office market.