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Serviced Office Review: East Midlands Q4 2009

Serviced Office Review: East Midlands Q4 2009
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Serviced Office Review: East Midlands Q4 2009

DOWNLOAD A FULL COPY OF THIS REPORT HERE

The following report utilises statistics for Q4 09 from
officebroker.com, the UKΓÇÖs 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 East Midlands 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 East
    Midlands was compiled to provide a comparative
    analysis of the changes within the serviced office
    market during Q4 09.

    • HIGHLIGHTS
  • 24 new serviced offices
    added to the officebroker.com
    portfolio in 2009
  • Q4 09 compared to Q4 08:
    Enquiry levels remained
    consistent

  • + 9% rise in new serviced
    office tenants (SOTΓÇÖs)
  • Average workstation
    price dropped to £211.00
    from £222.00
  • Initial license agreements
    peaked at 5.9 months –
    down 17%
  • [/list]

    • SUPPLY OF SERVICED OFFICE SPACE
  • 24 serviced office buildings were
    added to the officebroker.com
    portfolio during 2009, representing a
    + 24% increase in the total number of
    serviced office buildings available.
  • The total number of serviced office buildings reached
    102 in the East Midlands during Q4 09. This peak
    figure followed 4 new offices being added to the
    officebroker.com portfolio during Q4 09.

    The 4 serviced office buildings added in Q4 09 were
    part of 24 buildings added during the entirety of 2009.
    These additions represented a 24% increase in the
    total number of serviced office buildings available
    within the East Midlands.

    According to commercial property agents DTZ***,
    prime office rents for conventional space in
    Nottingham dropped as low as £17.95 during 2009.
    Such a decrease could have contributed to an
    increase in serviced office providers seizing the
    opportunity to lease new buildings for conversion to
    business centres.

    Securing a financial return on such investments would
    be dependant on a rise in both demand and average
    workstation costs, both areas that have nationally
    decreased in 2009.

    The upward levels of supply slowed between Q3 and
    Q4 after sharper increases in Q1 and Q2. It is unclear
    what brought about this fading in the latter half of
    2009, but with the +21% increase registered overall in
    2009 it would appear serviced office providers have
    new space to accommodate any increased uptake
    that may occur.

    • DEMAND FOR SERVICED OFFICE SPACE
  • Enquiry levels remained level within
    1% of Q4 08 levels
  • The number of new enquiries received for serviced
    office space remained largely unchanged during Q4
    09, a continuation of the pattern witnessed across the
    three previous financial quarters of 2009.

    Although variations in enquiry levels occurred monthon-
    month, the overall effect was to return enquiry
    levels to within 1% of those recorded during Q4 08.

    This pattern of consistency also matches the national
    average recorded during this same period, which also
    remained within 1% of Q4 09 levels.

    So what does the unchanging nature of enquiry levels
    in the East Midlands suggest about the state of the
    serviced office market? Well, given the expected
    impact of recession, the maintaining of enquiry levels
    suggests that demand and interest has remained
    consistent amongst businesses within the East
    Midlands. This could suggest that the region will be
    well positioned to respond as the UK continues to
    move out of the long-lasting recession. Alternatively
    the unchanging nature of demand could suggest a
    static market with little room for future growth.

    • NEW SERVICED OFFICE TENANTS (SOTS)
  • +9% increase in new serviced office
    tenants (SOTΓÇÖs)
  • The total number of new SOTΓÇÖs fluctuated month on
    month compared to Q4 08 culminating with an overall
    increase of +9%. Such fluctuations reflect similar activity seen in this
    area during the previous financial quarters of 2009,
    ending with an annual decline of -11% in the total
    number of SOTΓÇÖs.

    This annual decline, despite the +9% growth of Q4
    09, tells us that although enquiry levels have remained
    stable, as highlighted in the previous section of this
    report, the conversion rate has fallen.

    Such a fall points to a shrinking market for serviced
    office space within the East Midlands, perpetuated by
    its failure to attract new enquiries and convert existing
    ones. This situation could be made all the more acute
    given that the number of serviced office buildings has
    increased throughout 2009, a factor which would
    spread an already thinning market further.

    • AVERAGE WORKSTATIONS PER SOT
  • Average workstations per SOT
    reached 2.6 ΓÇô Down – 41% on Q4 08
  • Another area of the market which experienced a
    decline during Q4 09 was the number of workstations
    being taken by new SOTΓÇÖs.

    In Q4 08 new SOTΓÇÖs entering the market took on
    average 4.4 workstations per placement, but in Q4 09
    that number had fallen by -41% to create an average
    workstation take-up of 2.6 per new SOT.

    This near halving of workstation take-up again
    points toward a declining market for serviced office
    space in the East Midlands. Decreases in workstation
    take-up also occurred in previous financial quarters
    of 2009. If we also take into account the overall drop
    in SOTΓÇÖs witnessed in these periods, it becomes
    clear demand and take-up have both suffered heavily
    throughout 2009.

    One explanation to these trends could be that the
    new SOTΓÇÖs 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
    the trend for smaller workstation requirements shows
    no sign of altering within the East Midlands. As such
    service office providers may increasingly come under
    pressure to re-configure office templates in order to
    match this demand.

    Whatever the reason, the 41% decline seen during
    this period suggests a need for office providers to
    re-evaluate the importance of smaller clients. While
    previously it may have been more desirable to focus
    on clients with larger requirements, the results from
    Q4 09, which reflect a trend also witnessed in Q1-Q3
    09, suggest that smaller workstation requirements will
    continue to dominate the market for the foreseeable
    future and office providers will need to address this
    change in habit.

    • SERVICED OFFICE SPACE COSTS
  • Average price per workstation fell to
    £211.00 from £222.00 in Q4 08
  • Despite declines in other areas the impact upon the
    average price per workstation in the East Midlands has
    been minimal, falling only -5% below Q4 08 levels.

    A month by month comparison of Q4 09 reveals that
    average workstation costs remained below 08 levels
    during October (-10%) and November (-5%) before
    rising marginally above 08 levels in December (+2%).

    The average workstation cost of £211.00, despite
    being £47.00 below the national average of £258.00
    recorded for Q4 09, represents one of the smallest
    changes in this area of any UK region. With only
    a -5% decrease the East Midlands compares
    favourably to the nationwide average of -10% and to
    that of areas such as the West Midlands (-25%) and
    even Central London (-18%).

    This continued drop however, while positive for
    buyers entering the market, could mean a long
    period of recovery will be needed for the serviced
    office providers.

    • INITIAL LICENSE LENGTHS
  • Initial license length commitment falls
    to 6.3 months – 17% down on Q4 08
  • New SOTΓÇÖs are signing initial licences averaging 6.3
    months in Q4 09, 1.4 months (-17%) shorter than in
    the same period in 2008.

    In light of the declining workstation costs of Q4 09,
    it would be reasonable to assume that tenants may
    have looked to take advantage, securing longer terms
    at more favourable rates. The 1.4 month decrease
    (-17%) 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
    Q3 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 key findings can be drawn:

  • Enquiry levels have remained consistent with
    2008 levels
  • The overall number of new serviced office
    tenants increased during the financial quarter
    but declined annually.
  • Q4 demonstrated that smaller workstation
    requirements continue to dominate,
    suggesting that streamlined operations
    have been adopted.
  • Average workstation costs continued to fall
    but proved more favourable in the region than
    in the UK as a whole.
  • Initial license lengths fell as SOTΓÇÖs failed to
    capitalise on the lower rates available from
    serviced office providers.
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    Author: | February 18, 2010 | 0 Comments

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