Serviced Office Space: The Impact of Recession on Client Commitment
Data showing the license lengths of UK businesses operating in serviced offices since January 2008 has revealed the impact of the recession on the commitment levels of these businesses, while also highlighting that despite the recession having officially ended commitment levels are still faltering.
Tracking the average license length of businesses entering serviced office space before and after the recession (see graph), it is clear to see that the length of time that businesses were willing to commit to in serviced offices dropped significantly over the course of the UKΓÇÖs recession. The most dramatic decline in this area of the serviced office space market began in December 2009, following an initial surge in license lengths (Oct-Dec) following the UK economy officially falling into recession.
The reason for the increased licence lengths between October ΓÇô December 2009, which exceeded the levels recorded in the 12 months prior to the onset of recession, is unknown, but could have been driven by businesses shoring up their existing arrangements or increased confidence following the UK GovernmentΓÇÖs announcement of the Fiscal Stimulus package in October 2009.
If this increased commitment was the result of such an announcement the activity of businesses operating within serviced offices clearly shows that any increased confidence was short lived, with license lengths entering a steep decline over the following 6 months. Interestingly this sustained period of decline coincided with the UK government unveiling a plan to guarantee up to ┬ú20bn of loans to small and medium-sized firms to help them survive the downturn ΓÇô overwhelmingly the types of businesses utilizing serviced offices throughout the UK.
What is of particular interest is that this same period coincided with the biggest percentage decrease of workstation costs in 2009, some -23% when taken as a national average, meaning that as businesses reduced their commitment to focus on the short term, the opportunity to secure a long-term deal at vastly reduced rates would have been available. The fact that businesses did not engage in such deals clearly highlights the uncertainty of serviced office based businesses at this time.
While the decline in workstation costs continued up until the opening quarter of 2010, during which the first quarter-on-quarter rise (+5% nationally) was recorded since 2008, businesses entering serviced offices remained reluctant to commit to the levels seen prior to the recession.
Despite noticeable increases in May and July 2009, the length of licenses being signed by businesses in serviced offices remained low until the opening month of 2010 when commitment levels reached a 12 month high. This New Year rally on license lengths was however short-lived, with license lengths falling back once more during February and March 2010. Declines in this period could however be historic, with similar declines having occurred in both 2008 and 2009 ΓÇô although the decline in 2009 was certainly more severe and prolonged as a result of the recession ΓÇô and may be linked to April budgets.
While the activity recorded in April and May 2010 suggests increased stability in this area of the serviced office space market, license lengths still remain behind pre-recession levels, demonstrating that while commitment and confidence amongst businesses would appear to be improving, it remains battered and bruised with a long way still to go.
*Please Note: All data is based on officebroker.com records only.