Are serviced offices set to dominate the London occupational market?

It is the topic of conversation amongst most of the West End
and City office agents, but are they embracing change?

It cannot be denied that the sector has expanded rapidly over
recent years. The market has matured substantially from its origins
where the only occupiers tended to be start-ups that couldn’t
afford a ‘proper’ office and needed not much more than a postal
address. The UK is now the leading global serviced office sector
accounting for 36% of worldwide serviced office footprint and a
growth rate of 31% since 2008. As might be expected, London is
leading the way accounting for 34% of the UK market 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, which is in part due to the fact
that tenants are increasingly prepared to pay the ‘premium’ rents
associated with serviced offices in return for greater flexibility and
the advantages of fixed costs without the potential risks associated
with a conventional lease.

Clearly, flexibility and minimal start-up costs are key factors,
especially for the smaller occupiers, but these are not the only
reasons for growth in the sector. Larger occupiers are also attracted
to co-working and serviced offices where they see the opportunity
to collaborate with the new and creative companies that dominate
these centres and the access it gives them to a growing talent pool.
We don’t view the sector as a threat; on the contrary, we see the
fluidity and flexibility as a complement to the more traditional
leasing model giving our tenant clients greater choice. To that
end, we have enthusiastically embraced the sector and are actively
assisting a number of the major operators with their ambitious
growth plans.

Recently, we advised Prospect Business Centres on their acquisition
of approximately 17,000 sq ft at 20 Midtown on Proctor Street, WC1.
Prospect informed us that Midtown was an area of interest and
having identified 20 Midtown as an ideal building we negotiated
terms on their behalf and as a result they will shortly be opening
their first Midtown centre.

Some landlords express concern over covenant strength with the
majority of operators taking leases in an SPV with additional surety,
usually in the form of a limited parent company guarantee. But long
gone are the days of Ouvagh Highfield and Southern Cross and there
have been few operator failures in recent years.
Also, and of increasing importance in these uncertain times, they are
more than happy to sign up on long term leases, in fact, this is their
preference with a minimum term of ten years required in most cases.
So the message is whether acting for landlords or tenants, we have to
“Larger firms and corporates view these adapt to and adopt to the ever-changing occupational office market

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for further information please contact:

  • Kevin Kemplen BSc MRICS

    Consultant, West End Agency
    DDI : 0203 946 3554
    Mobile: 07900 241 397