Serviced Office Review: Scotland – Q1 2010
Serviced Offices in Scotland have recorded growth during the opening quarter of 2010
Quarterly Research ΓÇô Serviced Office Industry
ΓÇóThe total number of serviced office buildings reduced by 2
ΓÇóEnquiry levels increased by + 28%
ΓÇóNew serviced office tenants (SOTΓÇÖs) increased by + 12%
ΓÇóAverage number of workstations per SOT rose to 3.2
ΓÇóAverage workstation price increased from ┬ú178.00 to ┬ú291.00
ΓÇóInitial license agreements fell by -20%
The following report utilises statistics for Q1 10 from officebroker.com, the UKΓÇÖs leading independent broker of serviced office space, to present findings on activity within the serviced office industry.
The report presents results on the following key areas in Scotland:
Supply of and demand for serviced office space
ΓÇóIn terms of the number of enquiries, the size and shape of those enquiries and the number of placements
New Serviced Office Tenants:
ΓÇóIn terms of workstation prices and initial license length commitment
Using the statistics from these areas, a detailed overview of the serviced office industry in Scotland was compiled to provide a comparative analysis of the quarter-on-quarter changes within the serviced office market during Q1 10 compared to Q1 09.
Supply of Serviced Office Space ΓÇô Scotland Q1 2010
ΓÇóThe total number of serviced office building reduced by 2
The total number of serviced office buildings reduced by 2 during the course of Q1 10, representing a -1% decrease in supply levels within Scotland.
Having witnessed the number of individual serviced office buildings grow substantially between Q2 09 and the close of Q4 10, the decline in Q1 10 occurred as a result of 5 buildings ceasing to trade during the period and only 3 new buildings entering the market.
The end of this prolonged period of expansion, which saw total supply in Scotland increase by +37% in 2009, coincided with the wider economic recovery and a revival in the fortunes of the commercial property sector, bringing with it the prospect of increased prime rents that may have deterred providers from continuing the rapid expansion recorded throughout 2009.
Demand for Serviced Office Space
ΓÇóEnquiry levels increased by +28% in Q1 10
The overall number of enquiries received for serviced office space in Scotland increased by +28% during Q1 10, marking the first quarterly increase in enquiry levels since 2008 having fallen by an average of -13% quarter-on-quarter during 2009.
As shown in Fig 2, enquiry levels increased month-on-month during the opening quarter of 2010, with substantial increases occurring in January (+51%) and March (+56%) while February saw a more moderate rise of +13%.
Within several UK regions large increases in enquiry numbers have been seen in February and March as a result of officebroker.comΓÇÖs expanded marketing and affiliate activity*, in Scotland however the growth seen appears to be widely unconnected.
As outlined below, the impact of officebroker.comΓÇÖs expanded marketing and affiliate activity did not commence until 1st February. The outcome of this start date shows that the +51% increase seen during January was the result of a natural surge in demand, demonstrating that naturally strong interest in serviced office space existed in the opening period of 2010.
The subsequent increase of +56% in March, which in many other UK regions would be heavily associated with the marketing and affiliate activity, could therefore be a realistic representation of the natural demand for serviced office space taking place within Scotland at this time.
*Effective from 1st February 2010, officebroker.com extensively expanded its online marketing activity and affiliate program.
As a direct result of this activity the number of enquiries received by officebroker.com increased substantially during February and March. Such increases, while generating abnormally large changes when placed against previous data, will ensure that the statistics reported by officebroker.com are an even more accurate assessment of the serviced office market here in the UK.
New Serviced Office Tenants (SOTΓÇÖs)
ΓÇóNew serviced office tenants (SOTΓÇÖs) increased by +12%
The overall number of new SOTs entering the market during Q1 10 increased by +12% on Q1 09 levels, this rise, which comes after an overall decline of -10% during 2009 marks the first growth in SOTs in over 6 months.
As shown in Fig 3, month-on-month increases occurred in both January (+63%) and February (+180%) but fell short of 09 levels during March (-59%). After the large increases seen during the opening two months of Q1 10, questions remain over why March recorded such a sharp decline.
One possible reason behind the shortfall in March could be the disruptive effects of the severe weather that affected much of Scotland during the quarter. Unlike in other UK regions however, such as the North East and North West, Scotland did not see a decline in SOTs during the heavily affected months of January and February. It is however possible that the decline was a direct result of those businesses which had begun their search for office space in late December / January who were then forced to abort the process during the onset of the extreme winter weather.
Average Workstations Per SOT
ΓÇóAverage workstations per SOT reached 3.2 ΓÇô rising +3% on Q1 09 levels
The average number of workstations taken per SOT rose from 3.1 to 3.2 during Q1 10, representing an increase of +3% on Q1 09 levels.
As demonstrated in Fig 4, the average number of workstations per SOT increased during both February (+11%) and March (+10%) despite beginning the year by posting a decrease of -12% in January.
The overall increase achieved during this quarter, which followed an additional increase in Q4 09, marks the second consecutive quarter in which workstation take-up grew.
Having recorded an overall decrease of -26% in workstation requirements during 2009, this sustained period of growth signals the return of both stability and the prospect of easier times ahead for serviced office providers in Scotland as 2010 unfolds.
Serviced Office Space Costs
ΓÇóAverage price per workstation increased to ┬ú291.00
The average price per workstation increased from ┬ú178.00 in Q1 09 to ┬ú291.00 in Q1 10, an increase of ┬ú113.00 per workstation and representing a +39% rise.
A month by month analysis of Q1 10 reveals that average workstation prices exceeded Q1 09 levels month-on-month, rising moderately in January (+6%) before recording more sizable increases in February (+118%) and March (+52).
After seeing prices fall by an average of -20% during the entirety of 2009, this ample increase yet again provides positive signs for ScotlandΓÇÖs serviced office providers as they move into the second quarter of 2010.
It is also important to note that the overall increase of +39% was the largest percentage increase of its kind anywhere in the UK during Q1 10, significantly exceeding the national increase of +5% and helping workstation prices in Scotland to rise above the national average price mark of ┬ú242.00 in Q1 10 for the first time since 2008.
Initial License Lengths
ΓÇóInitial license length commitment drops to 7.5 months
New SOTΓÇÖs are signing initial licences averaging 7.5 months in Q1 10, a decrease of -20% on the average license length of 9.3 months recorded during Q1 09.
Despite decreases in all other areas of the market during 2009, initial license lengths in Scotland had remained solid, recording the highest average license length (8.3 months) of anywhere in the UK and decreasing by only 1% overall compared to a national average decline of -20%.
Given this previous stability, the decline in initial license lengths during Q1 10 could point towards increased caution from the influx of new SOTs entering the market during this time. But with workstation prices having risen to an 18 month high during Q1 10, serviced office providers will no doubt be keen to encourage any future SOTs to show the higher levels of commitment seen throughout 2009 in order to add further stability to the recovering market in Scotland.
When taking into account all the information for Q1 10, the following findings can be drawn:
ΓÇóEnquiry levels recorded a sustained increase for the first time since 2008
ΓÇóThe number of new individual SOTs entering the market increased for the first time in 6 months
ΓÇóWorkstation requirements continued to increase steadily after suffering substantial decreases throughout 2009
ΓÇóThe average price per workstation exceeded national averages for the first time since 2008 and showed the largest increase of any UK region during the opening quarter of 2010.
ΓÇóInitial license lengths decreased by their largest levels in over 12 months as new SOTs entering the market failed to commit to the degree experienced during the course of 2009.