KNOWLEDGE CENTRE

GREATER LONDON

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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 Greater London** region (not including Central London):

• 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 Greater London was compiled to provide a comparative analysis of the changes within the serviced office market during Q4 09.

HIGHLIGHTS

• 20 new serviced offices added to the officebroker.com portfolio in Q4 2009

• Q4 09 compared to Q4 08: E nquiry levels increased by +4%

• + 60% increase in new serviced office tenants (SOT’s)

• Average number of workstations per SOT was 3.7

• Workstation costs dropped to £273.00 p/m from £343.00 p/m

• Initial license agreements decreased to 5.9 months – down 41%

SUPPLY OF SERVICED OFFICE SPACE

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

The total number of serviced office buildings reached 344 in the Greater London area during Q4 09.

This peak figure followed the addition of 20 new offices being added to the officebroker.com portfolio during Q4 09.

The 20 serviced office buildings added in Q4 09 were part of 78 buildings added during 2009.

These additions represented a 23% increase in the number of serviced office buildings available within Greater London on officebroker.com.

As demonstrated by Fig.1 Q1-Q3 saw a continuous increase in the number of serviced office providers entering the market in Greater London. Between Q3 –Q4 however the number of providers declined as a result of 41 business centres ceasing to operate.

The closure of so many business centres could be the direct impact of the recession or the increased competition entering the market between Q1- Q3. But with a total increase of 78 serviced office buildings being created in 2009, it would appear that expectations for post-recession demand is high despite the apparent difficulties experienced by some.

DEMAND FOR SERVICED OFFICE SPACE

• Enquiry levels increased by+4% in Q4 09

NEW ENQUIRIES

The number of new enquiries received for serviced office space increased by +4% in Q4 09, marking the first financial quarter of 2009 to record an increase in enquiry levels after Q1-Q3 experienced an average drop of 5%.

As shown in fig.2, enquiry levels remained below Q4 08 levels in October (-5%) before rising above them in November (+16%) and December (+2%).

This resurgence in enquiry levels coincided with the UK economy finally exiting its long-lasting recession. As such it could be suggested that the increased levels of enquiries received during Q4 09 occurred as a result of increased confidence amongst business owners heading into 2010.

If confidence levels had begun to rise during this period, this may have driven business owners and entrepreneurial endeavours into action, leading directly to the boost in enquiries witnessed in Q4 09.

The decline in enquiry levels is a trend witnessed nationally throughout Q4 09, with areas such as Wales experiencing decreases as large as -30% below the Q4 08 levels.

In comparison to the national average of <1% recorded for this period however, the +4% shown in Greater London adds weight to expectations that Greater and Central London will be the heartlands for the economic recovery.

NEW SERVICED OFFICE TENANTS {SOT's}

• + 60% increase in new serviced office tenants (SOT’s).

The number of new SOT’s increased by +60% in Q4 09 compared to Q4 08. This rise occurred following substantial increases in both October (+49%), November (+62%) and December (+69%). (Fig. 3)

This latest quarterly increase in SOT’s follows similar increases between Q1-Q3 09, which recorded an average increase of +37% in the number of new SOT’s entering the serviced office market.

Continued growth in this area once again underpins Greater London’s credentials as a heartland for recovery. The increase in both SOT’s and enquiry levels demonstrates the positive actions being taken by businesses with the region.

The lower levels of SOT’s seen in 2008 may also reflect how businesses were responding to the impact of the recession, with business owners becoming hesitant and less willing to commit due to the uncertainty of the financial climate.

Continued growth in this area however shows that any hesitancy has now passed, with SOT’s on the increase in Central London 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 3.7 – down from 4.3 in Q4 08

The overall increase in new SOT’s during Q4 09 corresponded with a decline in workstation take-up. At the close of Q4 09 the average number of workstations per SOT was 3.7, a decrease of -14% on the 4.3 workstations being opted for during Q4 08. A month-by-month analysis (Fig. 5) shows decreases in October (-24%) and December (-28%) but a small increase in November (+5%).

While the increase witnessed in November 09 was small, it represented an increase in what was already a larger than average number of workstation placements. The very presence of SOT’s with larger workstation requirements, which have proved few and far between during 2009, shows a vibrancy and ambition amongst businesses operating within Greater London not present in many other regions of the UK.

Despite the presence of larger requirements in November 09, smaller workstation requirements, typically 1-3 workstations, have become dominant throughout 2009.

One explanation to this trend could be that the new SOT’s entering the market are predominantly start-up ventures. With start-ups naturally requiring smaller workstation requirements, this could explain why workstation sizes have fallen so significantly. Alternatively the cut in workstation requirements could demonstrate the scale of downsizing taking place as a result of the economic downturn.

A common thread throughout however is that smaller workstation requirements show little sign of altering within Greater London during the immediate future. As such serviced office providers may increasingly come under pressure to re-configure office templates in order to match this demand.

SERVICED OFFICE SPACE COSTS

• Average price per workstation fell to £273.00 p/m Down 20% on Q4 08

Another influencing factor on the rise in new SOT’s may be the competitive prices offered by serviced office providers during this period.

During Q4 09 the average price per workstation fell to £273.00 p/m from £343.00 p/m in Q4 08. A -20% decrease during the financial quarter.

A month by month comparison (Fig. 5) of Q4 09 reveals that average workstation costs have fallen below Q4 08 levels in both October (-25%) and November (-31%)

A positive sign from this Q4 activity is the narrowing of 08 and 09 workstation costs during December Q4 (-2%). The movement back toward 08 levels, differing by only £6.00 per workstation, is a substantial step forward from the average deficit of £102.00 per workstation recorded during October and November of the same financial period.

Compared to the national average workstation cost of £258.00 p/m recorded for Q4 09, Greater London’s average cost of £273.00 per workstation places it £15.00 per workstation above these nationwide levels. While it is positive that Greater London has remained above this figure in Q4 09, in Q4 08 the average cost per workstation in Greater London was £56.00 per workstation above the national average – demonstrating the severity of the downturn experienced by the serviced office industry during 2009.

INITIAL LICENSE LENGTHS

• Initial license length commitment falls to 5.9 months - 41% down in Q4 09

New SOT’s were signing initial licences averaging 5.9 months in Q4 09, 4.0 months (41%) shorter than in the same period in 2008.

In light of the falling workstation costs experienced during the majority of Q4 09, it would be reasonable to assume that buyers may have looked to take advantage, securing longer terms at more favourable rates. The 4.0 month decrease (41%) in licence lengths however suggests this has not been the case. One possible explanation could be a reluctance by business owners to over-commit, particularly with the harsh lessons of a recession still fresh. This reduction in commitment levels could suggest that businesses are unsure about their prospects in 2010.

A secondary explanation could be the direct influence of office providers. If a recovery is to happen in 2010, 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 Greater London Q4 09, the following findings can be drawn:

• Enquiry levels have grown for the first time in 2009.

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

• Larger workstation requirements have remained mostly absent from the market, suggesting that smaller requirements will continue to dominate/

• Average workstation costs continued to fall but moved toward the higher 2008 levels by the close of Q4 09.

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