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Serviced Office Review ΓÇô Central London Q4 09

Serviced Office Review ΓÇô Central London Q4 09

Serviced Office Review: Central London 09

This report draws upon data collected by, the UKΓÇÖs leading independent broker of serviced office space, to present a comparative analysis of regional activity between Q4 08 and Q4 09 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

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The following report utilises statistics for Q4 09 from, the UKΓÇÖs leading independent broker
of serviced offi ce 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
of interest in the Central London*** 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
length commitment

Using the statistics from these areas, a detailed
overview of the serviced offi ce industry in Central
London was compiled to provide a comparative
analysis of the changes within the serviced offi ce
market during Q4 09.


ΓÇóEnquiry levels
dropped by 10%

ΓÇóThe number of newly
signed serviced offi ce
tenants rose by 46%

ΓÇóAverage workstation
price dropped from £560.00
to £461.00

ΓÇóAverage license length
agreement dropped from 9
months to 6.9 months

Supply of serviced office space

78 serviced office buildings were
added to the
portfolio during 2009, representing a
36% increase in the number of
serviced office buildings available.

The total number of serviced office buildings reached
216 in Central London during Q4 09. This peak figure
represents a net increase of 3 buildings during Q4
09, equating to a 1% rise in the number of buildings
registered by the end of Q3 09.

Although the growth seen between these last two
quarters of 2009 was nominal (Fig 1), strong growth
in Q2 and Q3 contributed to an overall increase of 78
buildings being added to the offi portfolio
during 2009, representing a percentage increase of
36% on the total availability at the close of 2008.

With demand levels in Central London widely
predicted to increase* during the fi rst half of 2010, the
fl attening out of supply levels could lead to a shortage
of space if the trend were to continue. This in turn
may fuel a revival in the average workstation cost that
dropped so substantially during 2009.

For office providers savvy enough to have predicted
the timing of a recovery, and indeed with capital to
invest, the opportunity to lease new buildings for
conversion to business centres was likely to have been
an inviting prospect.

Commercial Property agents, including Cushman &
Wakefield, reported decreases of up to 20% in prime
rental costs for long-term leases on conventional
space** in 2009, highlighting the opportunity open
to office providers wishing to lay foundations for
expansion when the recovery finally arrives.

If predictions of increased demand come to fruition,
potential evidence for which can be found in the area
of this report covering new office occupiers in Q4 09,
then those office providers who have / did choose to
invest would stand to benefit greatly from an upswing
in the market.

Demand for serviced Office Space

ΓÇóEnquiry levels in Q4 09 down by 10%
compared to Q4 08.

As referenced earlier in this report, the demand for
serviced office space is expected to increase in 2010,
particularly within Central and Greater London ΓÇô both
areas seen as a heartland for the economic recovery.

Using our statistics we compared Central London
demand levels between Q4 09 and Q4 08 in order to
identify signs that would support or contradict such

New Enquiries

ΓÇóThe number of new enquiries received for serviced
office space continued to drop during Q4 09, ending
10% below the levels of Q4 08.

Despite the drop in enquiries, the pattern of activity
(Fig 2) seen in Q4 09 remained consistent with that of
Q4 08. In both sets of data October began strongly
before seeing enquiry levels tapering off to a low point
in December.

The fact that the overall number of enquiries dropped
in Q4 09 compared to Q4 08 could be a result of the
2009 financial downturn. As was widely reported in
the media, the near collapse of the banking system
in the UK resulted in SMEΓÇÖs becoming increasingly
restricted financially; making any expansion plans a
hesitant process.

Overall Enquiry Levels

ΓÇóQ4 09 enquiry levels 10% below
Q4 08 ΓÇô But improved on the 18%
average drop between Q1-Q3 09.

A decline in Central London enquiries during Q4
proved to be a continuation of decreases seen in the
previous financial quarters of 2009.

Interestingly Q4 09 experienced the smallest deficit
of any quarter in 2009, which despite being 10%
down on Q4 08 showed a noticeable improvement
on the average 18% decrease experienced between
Q1 ΓÇô Q3 (Fig 4).

It is feasible that this movement back toward the
higher figures of 2008 could be an early indication of
the predicted recovery. If the market is to recover then
enquiry levels would be expected to return
and surpass 2008 levels. Although Central London
has not yet seen this happen, the recuperation shown
in Q4 09 may well herald the beginning of such a
resurgence in 2010.

New serviced office Tenants (SOT ΓÇÖs)

ΓÇó 46% increase in new serviced office
tenants (SOTΓÇÖs).

In direct contradiction to the sharp decline in enquiry
levels during Q4 09, the number of serviced office
tenants (SOTΓÇÖs) entering serviced office space during
Q4 09 has improved considerably compared to the
same period in 2008 (Fig 5).

While SOT levels increased month on month
during Q4 09, the arrival of a spike in the number
of new SOTΓÇÖs in December resulted in a significant
boost to the quarterly results, contributing to an
overall rise of 46%.

It is reassuring that the number of SOTΓÇÖs entering the
market has increased, particularly when coupled with
the increase in workstations per SOT (Detailed below),
as they indicate a rise in confidence levels and positive
actions by business owners.

The lower levels of SOTΓÇÖs seen in 2008 may reflect
how businesses were responding to the impact of
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 begun to fade, with SOTΓÇÖs
on the increase in Central London and a new influx
of businesses taking advantage of the inherently
recession and budget friendly nature of serviced
office space.

Average Workstations Per SOT

ΓÇóAverage workstations per SOT
reached 5.9 during Q4 09

The average number of workstations placed per
SOT reached 5.9 by the end of Q4 09, an increase
of 0.3 workstations above the average recorded for
Q4 08.

However, as shown in Fig 6, this average figure is not
necessarily a fair representation of the overall activity
witnessed during the quarter.

While in both October and November 09 the average
number of workstations per SOT dropped, an
unexpected spike in December resulted in the financial
quarter registering an increase.

This December spike disrupts the consistent pattern
of decreased workstation sizes witnessed from Q1
09 right through to November Q4 09. As these types
of SOTΓÇÖs have proved few and far between during
2009, serviced office providers can take some comfort
knowing that SOTΓÇÖs wanting space in greater volume
have reappeared in the marketplace.

Workstation Prices

ΓÇóQ4 09 – Average price per workstation
£461.00 – 18% down on Q4 08

Another influencing factor on the rise in SOTΓÇÖs may
be the competitive prices offered by serviced office
providers during Q4 09.

During Q4 09 the average price per workstation fell to
£461.00 from £560.00 in Q4 08, supporting an overall
decrease of 23% in workstation prices in Central
London during 2009 (Fig 7).

One positive sign from these otherwise negative
figures is that the 18% decrease seen in Q4 was
the smallest drop of the year, with previous quarters
having experienced an average price per workstation
drop of 25%.

A month by month comparison also reveals that the
biggest decreases occurred during October and
November, with December finding itself only £28.00
(6%) below its 2008 level.

The movement of 2009 figures toward those of 2008
mirrors closely the activity seen in the enquiry section
of this report, suggested the return of demand has
brought a direct response from office providers in
their costing, signalling a possible return toward prerecession
trading habits.

Initial License Lengths

ΓÇóAverage license length agreement
dropped from 9 months to 6.9 months
between Q4 08 and Q4 09

In Q4 09 new SOTΓÇÖs were signing initial licences 2
months (23%) shorter than in the same period in
2008, meaning the average license length stood at 6.9

In light of the lower workstation costs 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 2 month decrease in
licence lengths however suggests 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. Such a
reduction in commitment levels would not only allow
them greater flexibility of movement, but also allow an
insight into confidence levels. Could it suggest that
businesses are unsure about their prospects in 2010,
or could the predictions of economic recovery mean
businesses are reducing commitment to prepare for
expansion in the later half of 2010?

A secondary explanation could be the direct influence
of serviced office providers. If, as key areas of
this reportΓÇÖs findings suggest, a recovery is in the
ascendancy, 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.


When taking into account all the information for Q4 09,
the following key findings can be drawn:

ΓÇóEnquiry levels have continued to drop but showed
signs of a recovery in the closing stages of Q4

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 saw a return of SOTΓÇÖs requiring larger numbers
of workstations to the market

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

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

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