Serviced Office Review: North East Q4 2009
Serviced Office Review: North East Q4 2009
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 North East* region:
ΓÇóSupply 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
ΓÇóNew Serviced Office Tenants:
– In terms of workstation prices and initial license
Using the statistics from these areas, a detailed
overview of the serviced office industry in North East
was compiled to provide a comparative analysis of the
changes within the serviced office market during Q4 09.
ΓÇó28 new serviced offices
added to the officebroker.com
portfolio in Q4 09
ΓÇóEnquiry levels fell by -20%
+ 69% increase in new
serviced office tenants (SOTΓÇÖs)
ΓÇóAverage number of
workstations per SOT was 2.7
ΓÇóWorkstation costs increased
to ┬ú196.00 p/m ΓÇô Up 10%
ΓÇóInitial license agreements
decreased to 7.2 months
SUPPLY OF SERVICED OFFICE SPACE
ΓÇó28 new serviced offices added to
officebroker.com portfolio in Q4 09.
The total number of serviced office buildings reached
106 in the North East region during Q4 09. This peak
figure followed the addition of 28 new serviced offices
being added to the officebroker.com portfolio during
The 28 serviced office buildings added in Q4 09
were part of 64 buildings added during 2009.
These additions represented a +60% increase in the
number of serviced office buildings available within
the North East.
As demonstrated by Fig.1, Q2-Q4 saw a sharp
increase in the number of serviced office providers
entering the market in North East. This followed a
increase of only 5 serviced office buildings between
the close of Q4 08 and the beginning of Q2 09.
This sudden increase in supply could suggest that
expectations amongst serviced office providers are
high for 2010. The increases between Q2-Q4 09 also
coincided with a fall in prime rent levels according
to research by DTZ** which fell from ┬ú22.00 psf to
┬ú20.00 psf during this period.
DEMAND FOR SERVICED OFFICE SPACE
ΓÇóEnquiry levels decreased by -20%
in Q4 09
The number of new enquiries received for serviced
office space decreased by -20% in Q4 09, marking
the fourth consecutive financial quarter to record drop
in enquiry levels during 2009.
As shown in fig.2, enquiry levels remained below
Q4 08 levels throughout October (-26%), November
(-22%) and December (-3%) of Q4 09.
The decline in enquiry levels, such as that witnessed
in the North East, is a trend that has been
experienced nationally throughout both Q4 09 and
2009 as a whole.
As a region the North West has seen the second
largest decrease in enquiry levels during Q4 09, with
only Wales (-30%) experiencing a higher drop. In
comparison, National enquiry levels remained static,
altering <1% on those received during Q4 08.
Given the state of the UK economy in Q4 08 it is
perhaps understandable why enquiry levels continued
to drop. But with Q4 09 representing the financial
quarter which officially brought the UK economy out
of recession, it would be hoped that enquiry levels
would reflect both this economic turnaround and
the growing confidence amongst business owners.
Despite the poor enquiry levels of October and
November 09, the narrowing of 08 and 09 figures
seen in December Q4, moving to within 3%, could
point toward such a change.
NEW SERVICED OFFICE TENANTS (SOTS)
ΓÇó+69% increase in new serviced office
The number of new SOTΓÇÖs increased by +69% in Q4
09 compared to Q4 08. This rise occurred following
substantial increases in both October (+120%) and
November (+80%) while experiencing a relatively
moderate rise in December (+17%). (Fig. 3)
This latest quarterly increase in SOTΓÇÖs follows similar
increases in Q1 and Q2 09, which recorded an
average increase of +33% in the number of new
SOTΓÇÖs entering the serviced office market. Q3 09 did
however record a -22% drop on 08 levels.
Continued growth in this area suggests a large
number of new, individual businesses are entering
serviced office space in 2009. This, coupled with the
closing gap between 08 and 09 enquiry levels, points
toward North East businesses having responded
positively to the challenges of 2009.
The lower levels of SOTΓÇÖs seen in 2008 may also
reflect how businesses were responding to the threat
of the impending 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 pasted, with SOTΓÇÖs
on the increase in the North East and a new influx
of businesses taking advantage of the inherently
recession and budget friendly nature of serviced
[pAVERAGE WORKSTATIONS PER SOT
ΓÇóAverage workstations per SOT
reached 2.7 ΓÇô down from 7.2 in Q4 08
The overall increase in new SOTΓÇÖs 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 2.7, a decrease of -63%
on the 7.2 workstations being opted for during Q4 08.
A month-by-month analysis (Fig. 5) shows a
substantial decrease in the average number of
workstations per SOT during October 09 (-82%),
where workstation take-up plummeted from an
average of 13.9 in October 08 to just 2.4 in October
09. Decreases also occurred in November (-10%) and
December (-47%) highlighting the lack of larger deals
entering the serviced office market during 2009.
Smaller workstation requirements have become a
trend throughout 2009, reducing in the North West
by an average of -26% between Q1-Q3 09 and
nationally by 34%.
One explanation to this trend 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 smaller
workstation requirements show little sign of altering
within the North East during the immediate future. As
such service office providers may increasingly come
under pressure to re-configure office templates in
order to match this demand.
SERVICED OFFICE SPACE COSTS
ΓÇóAverage price per workstation
increased to ┬ú196.00 p/m – up 10%
on Q4 08
During Q4 09 the average price per workstation
increased to ┬ú196.00 from ┬ú179.00 in Q4 08. A +10%
increase during the financial quarter.
A month by month comparison (Fig. 5) of Q4 09
reveals that the higher prices commanded in October
09 underpinned this increase, having risen +93% from
┬ú136.00 in 08 to ┬ú263.00 in 09.
This upswing in October 09 costs suggests that a series
of high value deals took place, most likely in business
centres offering Grade ΓÇÿAΓÇÖ space. This high value / low
quantity balance is reiterated by the low workstation
requirements recorded during the same period.
The remainder of Q4 09 however showed the continued
decreases in average workstation costs that had
become common place between Q1-Q3 in the North
East, averaging a -40% decrease
on 08 levels.
A positive sign from the remainder of Q4 09 is that the
deficit between 08 and 09 workstation costs are much
improved on the average -40% recorded between Q1-
Q3 09. With November (-11%) and December (-24%)
showing this marked improvement and the injection of
the high value deals in October it could suggest that
workstation costs will continue to push back toward the
higher levels seen in 08.
Compared to the national average workstation cost
of ┬ú258.00 p/m recorded for Q4 09, the North EastΓÇÖs
average cost of ┬ú196.00 per workstation places it
┬ú62.00 per workstation behind these nationwide levels.
INITIAL LICENSE LENGTHS
ΓÇóInitial license length
commitment falls to 7.2 months
– 9% down in Q4 09
New SOTΓÇÖs are signing initial licences averaging 7.2
months in Q4 09, 0.7 months (-9%) 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 nominal decrease (-9%) recorded in
licence lengths however suggest that 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
When taking into account all the information for Q4 09,
the following findings can be drawn:
ΓÇóEnquiry levels have continued to fall but
moved closer to the higher 08 levels by the close
of Q4 09.
ΓÇóThe overall number of new serviced office tenants
rose during the financial quarter ΓÇô suggesting an
increase of individual new businesses entering the
serviced office industry.
ΓÇóLarger workstation requirements have remained
absent from the market, suggesting that smaller
workstation requirements will continue to
ΓÇóAverage workstation costs continued to fall but
showed tentive signs of recovery toward the close
of Q4 09.
ΓÇóInitial license lengths fell as SOTΓÇÖs failed to
capitalise on the lower rates available from
serviced office providers.