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Serviced Office Review – West Midlands Q4 09

Serviced Office Review – West Midlands Q4 09
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Serviced Office Review: West Midlands Q4 09

WEST MIDLANDS Q4 09

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 West Midlands** 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 placements

ΓÇóNew 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 West Midlands was compiled to provide a comparative analysis of the changes within the serviced office market during Q4 09.

HIGHLIGHTS

ΓÇó8 new serviced offices added to the officebroker.com portfolio in Q4 09

Q4 09 compared to Q4 08:

ΓÇóEnquiry levels rose 21% 63% rise in new serviced office tenants (SOT ΓÇÖs)

•Average workstation price dropped to £196.00 p/m from £261.00 p/m

ΓÇóInitial license agreements decreased 5.1 months

SUPPLY OF SERVICED OFFICE SPACE

ΓÇó8 new serviced offices added to officebroker.com portfolio in Q4 09.
48 serviced office buildings were added to the officebroker.com portfolio during 2009, representing a 21% increase in the total number of serviced office buildings available.

The total number of serviced office buildings reached 217 in the West Midlands during Q4 09. This peak figure followed 8 new serviced office buildings being added to the officebroker.com portfolio during Q4 09.

The 8 serviced office buildings added in Q4 09 were part of 48 buildings added during the entirety of 2009. These additions represented a 21% increase in the number of serviced office buildings available within the West Midlands.

According to commercial property agents Cushman & Wakefield, prime office rents for conventional space in Birmingham dropped by as much as 15.4%* during 2009.

Such decreases 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 decreased substantially 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 an increased uptake that may occur.

DEMAND FOR SERVICED OFFICE SPACE

ΓÇóEnquiry levels increased by
21% in Q4 09

NEW ENQUIRIES

The number of new enquiries received for serviced office space rose +21% in Q4 09 and proved to be a continuation of the growth seen in previous financial quarters of 2009.

In Q4 09 enquiry levels exceeded those of Q4 08 month on month with November revealing the largest increase (+40%) and smaller increases following in October (+2%) and December (+24%).

The pattern seen in Q4 09 could be the result of businesses experiencing a change in circumstances, such as suggestions of a 2010 recovery or an increase in the levels of financial assistance available to SMEΓÇÖs.

When comparing results for the West Midlands against national averages during the same period, the West Midlands region was only 1 of 5 UK regions to experience growth in this area during Q4 09. Of these 5 regions the West Midlands experienced the largest increase in enquiry levels (+21%), with its closest rival, the North East, recording +12%.

WORKSTATION ENQUIRIES

ΓÇóNumber of workstations, as requested during the initial enquiry process, grew 8% above Q4 08

Another market indicator remaining relatively consistent in Q4 09 was workstation size requirements, representing the number of workstations requested by clients during the initial enquiry process.

Despite slight month by month fluctuations, the overall difference between Q4 09 and Q4 08 was + 8%. This 8% increase on Q4 08 figures represented the first positive response in this area of the market during 2009, with previous quarters recording an average deficit of -17% on 2008 levels.

NEW SERVICED OFFICE TENANTS {SOTS}

ΓÇó63% increase in new serviced office tenants (SOT ΓÇÖs).

The total number of new SOTΓÇÖs during Q4 09 rose month on month compared to Q4 08 contributing to an overall rise of +63% during the financial quarter, peaking in October before tapering off in November and December.

Growth in Q4 09 followed similar rises between Q2-Q3 09, highlighting an influx of new clients to the serviced office market. Those businesses forming this influx have enjoyed an unprecedented level of choice in terms of the serviced offices available to them (See Page 2) in 2009. As such businesses are now far more likely to identify a suitable space than in previous years, increasing the chance of converting general enquiries to placed SOTΓÇÖs.

Growing exposure to the serviced office market will
also have fuelled education levels, creating the opportunity for serviced office providers to capitalise and potentially increase overall market share if client experiences
remain positive.

AVERAGE WORKSTATIONS PER SOT

ΓÇóAverage workstations per SOT reached 3.2 ΓÇô Down 30% on Q4 08

Increases in the number of new SOTΓÇÖs during Q4 09 corresponds (Fig 6.) with the number of workstations per new SOT falling significantly on Q4 08 figures, reaching an average of 3.2 workstations per SOT in Q4 09, down 30% from the average of 4.6 workstations per SOT in Q4 08 .

Such a trend suggests that new SOTΓÇÖs entering the market are predominantly start-up ventures. With start-ups naturally requiring smaller workstation requirements, providers may have come under increased pressure to re-configure office templates in order to match this demand.

Alternatively the fall in workstation requirements could demonstrate the scale of downsizing taking place as a result of the economic downturn, but with a clear shift toward smaller workstation requirements the need to accommodate these demands would remain the same.

Whatever the reason, the -30% 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 in the foreseeable future and office providers will need to address this change in habit.

SERVICED OFFICE SPACE COSTS

ΓÇóAverage price per workstation fell to ┬ú196.00 p/m – Down 25% on Q4 08

Another influencing factor on the rise in new SOTΓÇÖs may have been the competitive prices being offered by serviced office providers.

During Q4 09 the average price per workstation fell to £196.00 p/m (-25%) from £261.00 p/m in Q4 08. This contributed to the 21% decrease in workstation prices experienced annually in the West Midlands during 2009.

A month by month comparison of Q4 09 reveals
that average workstation costs continuously fell below
Q4 08 levels.

While such a decline reflects a nationwide trend rather than an exclusive trend in the West Midlands, it would appear that the levels of decline have been felt more heavily within the region. This heavier impact is
reflected in the £62.00 difference between the national average workstation cost of £258.00 p/m and the average workstation cost of £196.00 p/m recorded for the West Midlands.

This continued drop, 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 6.4 months – 43% down in Q4 09

New SOTΓÇÖs are signing initial licences averaging 6.4 months in Q4 09, 5.1 months (-43%) shorter than in the same period in 2008.

In light of the free-falling 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 5.1 month decrease in licence lengths however suggests this has not been the case.

One possible explanation for this trend 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 findings can be drawn:

ΓÇóEnquiry levels have continued to grow, exceeding 2008 levels.

ΓÇóThe overall number of new serviced office tenants continued to increase throughout the financial quarter ΓÇô highlighting an influx of new businesses into the serviced office industry.

ΓÇóQ4 demonstrated that smaller workstation requirements continue to dominate, suggesting that streamlined operations have been adopted.

ΓÇóAverage workstation costs continued to fall but saw the deficit between the higher Q4 08 costs narrow substantially in December of Q4.

ΓÇóInitial license lengths fell as SOTΓÇÖs failed to capitalise on the lower rates available from serviced office providers.

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Author: | February 16, 2010 | 0 Comments

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