UK Serviced Offices: Peak to Trough – The Central London Led Recovery
The serviced office space market in July 2008 represented what has been widely regarded as the ΓÇÿpeakΓÇÖ of the market in terms of the price charged per workstation. With the 2 year anniversary of this peak now upon us, the UKΓÇÖs largest broker of serviced office space, officebroker.com, charts the changes in the serviced office market throughout this period.
As the only serviced office broker to record and publish quarterly reports on both a national and regional basis, officebroker.com offers a detailed illustration of the serviced office market through the use of its internal data. In July 2008, they recorded a national average price of ┬ú302 per workstation – signifying a price point that has since remained elusive on a national scale.
Looking at officebroker.comΓÇÖs data on an annual basis since July 2009, there has been a clear downward trend in workstation prices, a change which is tracked by the firmΓÇÖs Serviced Office Review Series.
In July 2009 a price of ┬ú231 per workstation was recorded by officebroker.com ΓÇô a deficit of -24% on the peak workstation price of July 2008. At the point of July 2010 ΓÇô 2 years after the peak ΓÇô national workstation prices were at ┬ú230, a figure which has remained almost unchanged from that of July 2009.
Taking the officebroker.com data into account along with wider industry research, it may be seen that the national decline in workstation prices within serviced offices corresponded with a decline in the wider fortunes of the Commercial Property Market.
With the lowest price point of these markets being reached between Q2 and Q3 of 2009, both markets appear to be showing the same trends, with the ΓÇ£bottoming-outΓÇ¥ and peak points appearing in unison.
- Central London Leads the Way:
Within the Commercial Property Market, Central London is frequently heralded as the location which leads the way in terms of both decline and recovery across the UK. With such widespread prophesising in mind, it is important to consider the impact of the Central London Market on the National picture in the Serviced Office Market.
Considering this apparent role as a guiding light for market activity, it is interesting to note that Central London, when considered as an independent market, experienced exactly the same % decrease as the UK nationally between 2008 and 2009, with average workstation prices having fallen from ┬ú603 to ┬ú459 (-24%) by July 2009.
Given that the same rates of decline were recorded in both the localised Central London market as that of the national market, the question as to whether subsequent rises in Central London prices would also be reflected evenly across the national market is raised.
- The Impact of Central London on the National Market:
Comparing the activity shown by officebroker.com, the changes recorded in Central London in July 2009 compared to July 2010 are quite different from the changes recorded in the national market during the same period of time.
Taking Central London as a stand-alone market, average workstation prices have risen by 12% from the trough price of ┬ú459 in July 2009, having reached ┬ú516 by the close of July 2010. While this 2010 price remains significantly below the peak price of ┬ú603 recorded for Central London in 2008, this increase brings Central London prices to within -14% of the July 2008 figure of ┬ú603 per workstation, clearly showing price recovery in action.
As shown in Fig 3, the influence of the Central London market upon the national market is significant, with the impact of Central London prices increasing national price levels by between 9 -13% during this period.
When excluding Central London, the influence of this market upon national figures becomes even more apparent, with the -24% deficit that occurred nationally between the July 2008 and July 2009 extending by an additional -3% in 2010.
The result of this means that officebroker.comΓÇÖs data now shows a -27% deficit in the average workstation price nationally since the July 2008 peak.
What can be draw from the contrasting fortunes of the Central London and national markets is that while downturns in both markets appear to run more closely, subsequent recovery is far less evenly distributed and would appear to impact upon regional markets for a longer duration.
The prolonged impact of this downturn on the regional markets is also supported in data published by commercial property agents Jones Lang LaSalle, with their Office Clock clearly demonstrating the property cycle and the delayed status of recovery in key regional office markets.
What is also shown in JLLΓÇÖs Office Clock, is that key locations within Central LondonΓÇÖs commercial office market are beginning to report accelerated rental growth and increasing rental prices. This activity again corresponds with the findings of officebroker.com and suggests both markets are on the way to recovery.
Yet more evidence for the symbiotic relationship between the serviced offices market and the commercial office market can also be found in the Marketbeat reports from Cushman & Wakefield, with significant decreases in prime rents occurring from Q2 2008 onward in key city markets and corresponded with those recorded by officebroker.com in the serviced office market.
- The Tip of the Spear?
With the evidence of these changes in activity being supported by research from commercial property firms and the serviced office industry, the apparent recovery in the Central London serviced office market would, by past trends and belief that the Central London market spearheads wider national activity and trends, infer that other regions would, within the next 6 ΓÇô 12 months follow the trend already seen in Central London of rising workstation prices.
Should this positive activity in the Central London market transpose to the national market, the second half of 2010 holds the potential for national workstation prices to finally begin recovering back toward the higher levels of 2008.
**Serviced Office Space Prices: Source: officebroker.com.
*** Jones Lang LaSalle: Office Clock Q2 2010