Serviced Office Review – United Kingdom 2009
Serviced Office Review 2009
This report draws upon data collected by officebroker.com, the UKΓÇÖs leading independent broker of serviced office space, to present a comparative analysis of national activity between 2008 and 2009 with a focus on the following areas of interest:
ΓÇó Supply and demand levels
ΓÇó Size and shape of businesses
ΓÇó Prices in the marketplace
ΓÇó License lengths
SERVICED OFFICE REVIEW – UNITED KINGDOM 2009
2009 compared to 2008:
ΓÇó Overall enquiry levels through
officebroker.com declined by
-7% on 08 levels
ΓÇó + 13% increase in the number
of new, individual serviced
office tenants (SOTΓÇÖs)
ΓÇó Average number of
workstations per SOT was 3.8
ΓÇó Average workstation costs
dropped -16% to ┬ú252.00
ΓÇó Initial license agreements
decreased to 7 months
SUPPLY OF SERVICED OFFICE SPACE
According to officebroker.com the supply of
serviced office space grew by +30%
during 2009, following the addition of
725 new serviced office buildings to
the officebroker.com portfolio
The total number of serviced office buildings on the
officebroker.com database reached 2456 in the United
Kingdom during 09. This peak figure followed the addition
of 948 new office buildings to the officebroker.com
portfolio and the removal of 218.
This generated a net increase of 725 buildings during
2009, equated to +30% growth in the number of serviced
office buildings operating within the United Kingdom.
As shown by Fig.1, the biggest increase in new serviced
office buildings took place between Q2 and Q3. This
period of growth coincided with prime rent levels in key UK
locations falling to new lows*.
This suggests that serviced office providers took
advantage of these declines in prime rent levels to acquire
additional spaces for conversion to new business centres.
Such activity by serviced office providers suggests that
their expectations for 2010 are high, despite an existing
over-supply in the market.
DEMAND FOR SERVICED OFFICE SPACE
Overall enquiry levels declined -7%
The number of new enquiries being received for serviced
office space during 09 declined by -7% on 08 levels.
As shown in Fig.2, the deficit between 08 and 09 enquiry
levels improved quarter-on-quarter, returning to within 1%
of the higher 08 levels by the close of Q4.
Given that Q4 09 officially marked the period in which the
UK economy meekly emerged from recession, the return
to 08 enquiry levels during Q4 provides evidence of a
renewed confidence amongst businesses as they once
again consider taking or increasing their operational space.
It is the opinion of officebroker.com that 2010 will see
a return to the higher enquiry levels of 2008, with 2009
having served as a buffer for the recovery needed to allow
this to take place. The recovery in enquiry levels predicted
for 2010, assuming the economy continues to recover,
would lay the foundations for subsequent growth in 2011.
NEW SERVICED OFFICE TENANTS (SOTS)
ΓÇó + 13% increase in the number of new,
individual serviced office tenants
The number of new SOTΓÇÖs increased throughout the
United Kingdom by +13% in 09 compared to 08.
Substantial increases in Q3 (+17%) and Q4 (+39%)
followed a small decrease in Q2 (-5%) which itself was
preceded by nominal rise in Q1 (+3%).
Following the -5% decline in Q2, the strong growth
witnessed in the final two quarters of 09 coincided
with the revival in enquiry levels. The strength of
the increase witnessed during this period helps to
underpin this growth as continued and sustained.
Positive responses in these key areas of the supply
and demand process reinforce a return to action for
many businesses that may have been lying dormant
throughout the financial hardships of 2009. Given the
renewed vigour shown in both Q3 and Q4, it would
appear that this dormant period has now ended,
drawn out by the improved financial stability and
increased confidence amongst businesses.
An increase in the number of businesses entering
serviced office space could also indicate a marked
difference in the way businesses are choosing to
operate following the harsh lessons administered
through recession with many start-up and SME’s taking advantage of serviced office space during these uncertain times.
This refocusing on short and mid-term business needs
may however continue to be applied by SMEΓÇÖs even
after economic recovery. With the lessons of recession
still fresh in the mind of business owners, the adoption
of a more flexible, malleable working model may well
continue to appeal.
The lower levels of SOTΓÇÖs seen throughout the
majority of 08 could also reflect how businesses were
responding to the impact of the impending recession,
with business owners becoming hesitant and less
willing to commit due to the uncertainty of the
Continued growth in this area however shows that any
hesitancy has now past, with SOTΓÇÖs on the increase
throughout the UK as a new influx of businesses
take advantage of the inherent recession and budget
friendly nature of serviced office space.
AVERAGE WORKSTATIONS PER SOT
ΓÇó Average workstations placed per
SOT dropped to 3.8
Despite an overall increase in SOTΓÇÖs during 09, the
average number of workstations placed per SOT
remained below 08 levels, decreasing by an average
of -26%. But given the rises noted in other areas,
what could have brought about this decrease in
One noticeable absentee from the serviced office
market throughout 09 were corporate clients. In 08,
corporate clients had been active within the serviced
office sector, often calling upon this type of space to
act as a base from which project specific work could
be carried out, much of which required larger numbers
It would appear the absence of corporate clients was
the result of such project work being cancelled or
placed on hold throughout the recession. But as the
economy of the United Kingdom begins to recover
and positive predictions for 2010 emerge, corporate
clients have once again begun to place enquiries,
suggesting that 2010 will see average workstation
requirements edging back toward the higher levels
recorded in 08.
Another reason for the dominance of smaller
workstation requirements is believed to be the types
and styles of businesses entering serviced office
space during this period.
As a result of the recession the UK saw a high
number of redundancies, often affecting highly skilled
individuals such as those in the financial sector.
The surge in the number of new, individual SOTΓÇÖs
entering the market is believed to have been heavily
influenced by this factor, a result of many of these
individuals setting up in business and leading to a
wave of boutique, specialist firms being born, who,
while still requiring a professional base of operations,
naturally have small space requirements to operate
This area of the market will also have undoubtedly
been affected by the general downsizing taking place
amongst businesses as they sought to cut costs and
add flexibility to their short and mid-term prospects.
SERVICED OFFICE SPACE COSTS
ΓÇó Average price per workstation fell to
┬ú252.00 ΓÇô dropping -16% from 08
During 09 the average price per workstation in the
UK fell to ┬ú252.00, representing a -16% decline on
the average workstation cost of ┬ú300.00 recorded
Falling workstation costs have, as shown in Fig 6,
been a trend affecting the serviced office industry
throughout 2009. Despite seeing the deficit between
prices shorten to their lowest point during the closing
quarter of 09, it is a trend which looks likely to
continue into 2010.
In 09 one of the most influential factors affecting how
potential clients were choosing office space was
undoubtedly price. This cost driven approach, coupled
with the amount of serviced office space sitting
empty due to an over-supply in the market, produced
increased competition amongst serviced office
providers as they sought to fill their redundant space,
leading to workstation costs being reduced in order to
attract potential SOTΓÇÖs.
Another factor which could have influenced the decline
in workstation costs during 09 was that of the quality
of space being opted for by SOTΓÇÖs. With budget
clearly a prime consideration, businesses which may
have previously opted for space in a Grade A building,
may have become increasingly willing to opt for less
prestigious space in order to cut their fixed costs.
INITIAL LICENSE LENGTHS
ΓÇó Initial license length agreements fell
to 7 months
During 09 new SOTΓÇÖs throughout the UK were signing
initial licence agreements averaging 7 months, a full 2
months shorter than in 2008.
In light of the falling workstation costs experienced
during 09, it would be reasonable to assume that
potential tenants may have looked to take advantage,
securing longer terms at more favourable rates. The
decrease of 2 months in those licenses being signed
however suggests 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 demand.
When taking into account all the information for 09, the
following key findings can be drawn:
ΓÇó Enquiry levels moved steadily back toward 08
levels throughout 09, drawing level by the close of
ΓÇó The overall number of new serviced office tenants
rose during 09 ΓÇô suggesting an increase of
individual new businesses entering the serviced
ΓÇó Larger workstation requirements remained
absent from the market, highlighting the types of
businesses that have been created as a result of
ΓÇó Average workstation costs continued to fall as a
result of over-supply, downsizing and the types of
businesses entering the market in 09.
ΓÇó Initial license lengths fell as SOTΓÇÖs failed to
capitalise on the lower rates available from
serviced office providers.
Predictions for 2010
ΓÇó The second half of 2009 has provided a series of
encouraging signs, suggesting the serviced office
market has become increasingly popular amongst
business start-ups and SMEΓÇÖs. This exposure,
coupled with the investment by serviced office
providers in new business centres, points toward
serviced offices becoming far more prominent in
2010 and beyond.
ΓÇó As the UK economy continues to improve,
corporate clients will reinstate projects leading to
an increase in average workstation requirements.
This in turn will lead to the current over-supply
issue reducing and supporting an increase in
average workstations costs.
ΓÇó The lower figures recorded in 09 will continue
to regain ground on the higher figures of 08,
securing a return to 08 levels by the close of 2010
assuming the economy remains stable. Potential
setbacks to this activity will be the drying up of
government impetus packages or a lack of private
investment to replace it.