KNOWLEDGE CENTRE

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The following report utilises statistics for Q4 09 from officebroker.com, the UK’s leading independent broker of serviced office space, along with external reports to present findings on activity within the serviced office industry in comparison to Q4 08.

The report presents results on the following key areas in the South West region:

•Supply of and demand for serviced office space - In terms of the number of enquiries, the size and shape of those enquiries and the number of placements

•New Serviced Office Tenants: - In terms of workstation prices and initial license length commitment

Using the statistics from these areas, a detailed overview of the serviced office industry in the South West was compiled to provide a comparative analysis of the changes within the serviced office market during Q4 09.

HIGHLIGHTS

•12 new serviced offices added to the officebroker.com portfolio in Q4 09

•Enquiry levels increased by +4%

•+ 33% increase in new serviced office tenants (SOT’s)

•Average number of workstations per SOT was 3.8

•Workstation costs dropped to £259.00 p/m

•Initial license agreements decreased to 6.5 months

SUPPLY OF SERVICED OFFICE SPACE

•7 new serviced offices added to officebroker.com portfolio in Q4 09

The total number of serviced office buildings reached 147 in the South West region during Q4 09. This peak figure followed the addition of 7 new offices to the officebroker.com portfolio during Q4 09.

The 12 serviced office buildings added in Q4 09 were part of 35 buildings added during 2009.

These additions represented a +31% increase in the total number of serviced office buildings available within the South West region.

As demonstrated by Fig.1, increases in the number of serviced office buildings occurred quarter-on-quarter in 09, with the sharpest rise taking place between Q2 and Q3.

An increase in the number of new serviced office buildings coincided with prime rent levels in commercial centres such as Bristol reaching, as reported by DTZ**, what is expected to be their lowest level before beginning to rise once more.

This suggests that serviced office providers remain optimistic about the appeal of serviced offices, having taken advantage of the lower prime rents to secure additional commercial property for conversion to business centres. Such investment points toward providers long-term commitment levels and how serviced offices have become increasingly appealing to SME’s and business start-ups.

DEMAND FOR SERVICED OFFICE SPACE

•Enquiry levels increased by +4% in Q4 09

The number of new enquiries received for serviced office space increased by +4% in Q4 09, marking the first financial quarter of 2009 to show an increase in this area, with Q1-Q3 09 having registered an average decrease of -11% compared on 08 levels.

As shown in fig.2, enquiry levels exceeded Q4 08 levels in both October (+13%) and December (+9) but fell behind during November (-7%).

These results make the South West only one of five UK regions to experience enquiry level growth during Q4 09.

Such activity demonstrates a positive response from South West businesses during the financial quarter, the same quarter which finally saw the UK economy emerge from recession.

This rise in enquiry levels will provide reassurance to those serviced office providers who introduced new business centres during 2009. As identified in the previous section of this report (Fig.1), if providers plans for a sustained increase in serviced office demand are to prove well founded, enquiry levels will need to continue to rise in order to generate the necessary occupants to make these investments viable.

NEW SERVICED OFFICE TENANTS (SOTS)

•+33% increase in new serviced office tenants (SOT’s)

The number of new SOT’s increased by +33% in Q4 09. This increase followed rises of +20% in October, +53% in November and +20% in December above the levels recorded during the same period of 2008. (Fig. 3)

This increase on 08 levels marked the second consecutive financial quarter to experience growth in SOT’s, with Q3 09 having recorded a substantial +73% increase on Q3 09 levels. Such increases are in stark contrast to the average -15% deficit recorded between Q1-Q2 09.

The continued growth in SOT levels during the final two quarters of 09, shows that a large number of new individual businesses have begun entering the serviced office market. Coupled with the rise in enquiry levels during Q4 09, this activity demonstrates that the positive intentions shown by businesses are being pushed through to completion.

While the lower levels of SOT’s seen in 2008 could have reflected how businesses were responding to the impact of economic recession, with business owners becoming hesitant and less willing to commit due to the uncertainty of the financial climate, the continued growth in this area during Q4 09 shows that any hesitancy has now pasted, with SOT’s on the increase in the South West and a new influx of businesses taking advantage of the inherently recession and budget friendly nature of serviced office space.

AVERAGE WORKSTATIONS PER SOT

•Average workstations per SOT reached 2.8 – down -14% on Q4 08

The overall increase in new SOT’s during Q4 09 corresponded with a decrease in the number of workstations being taken per SOT throughout the financial quarter.

At the close of Q4 09 the average number of workstations per SOT was 2.8, a shortfall of -14% on the 3.3 workstations being taken per SOT during Q4 08.

A month-by-month analysis (Fig. 4) shows that workstation requirements initially increased during October, rising +20% above October 08 levels, before falling below 08 levels in the following months of November (-34%) and December (-25%).

Smaller workstation requirements have become a trend throughout Q4 09, reducing nationally by -34%, most likely driven by a rise in smaller start-up’s entering the market and the downsizing taking place by those weathering the financial difficulties of 2009.

Despite the decline in overall workstation requirements during Q4 09, the increase seen in October 09 provides some positive indications that larger requirements are reappearing in the market. Given the increases witnessed in enquiry and SOT levels, it would once again suggest that the foundations are laid for a possible upswing in early to mid 2010.

SERVICED OFFICE SPACE COSTS

•Average price per workstation was £259.00 p/m - up +11% on Q4 08

During Q4 09 the average price per workstation increased to £259.00 p/m from £233.00 p/m in Q4 08, representing a +11% increase during the financial quarter.

A month by month comparison (Fig. 5) of Q4 09, reveals that average workstation costs exceeded Q4 08 levels in two out of three months, with November recording a +28% increase and December showing a more modest +5% rise.

Average workstation costs in the South West region have, despite dropping national by an average of -13% during the same period, risen by +8% between Q2-Q4 09, demonstrating the strength of the serviced office industry in the South West and the lesser extent to which the economic downturn appears to have impacted upon it.

Compared to the national average workstation cost of £258.00 p/m recorded for Q4 09, the South West’s average cost of £259.00 per workstation places it £1.00 per workstation above these nationwide levels.

INITIAL LICENSE LENGTHS

•Initial license length commitment falls to 6.5 months

New SOT’s are signing initial licences averaging 6.5 months in Q4 09, 2.4 months (-27%) shorter than in the same period in 2008.

One possible explanation could be a reluctance by business owners to over-commit, particularly with the harsh lessons of a recession still fresh, instead focusing on short and mid-term requirements that provide a greater deal of flexibility to their business needs.

A secondary explanation could be the direct influence of office providers. If a recovery is to take place in 2010 and the strong response in the South West continues to grow, then allowing occupants to secure terms beyond Q2 10 may be counter productive. By encouraging occupants to reduce initial licence length, providers are ensuring the opportunity to renegotiate rates at an earlier juncture. This would allow current market rates to be introduced, creating an environment where profit levels could be raised in line with market demand.

SUMMARY

When taking into account all the information for Q4 09, the following findings can be drawn:

•Enquiry levels have finally moved from negative to positive growth.

•The overall number of new serviced office tenants rose during the financial quarter – suggesting an increase in new businesses entering the serviced office industry.

•Smaller workstation requirements remain dominant but signs of larger requirements have returned to the market, suggesting that businesses are once more expanding their operations.

•Average workstation costs continued to rise for a third consecutive quarter.

•Initial license lengths fell as SOT’s failed to capitalise on the lower rates available from serviced office providers.