The average cost for UK companies to provide office space for their workers fell slightly during 2011 but costs in London’s West End rocketed by 12.5% year-on-year, according to DTZ’s annual ‘Global Occupancy Costs: Offices’ (GOCO) report. The West End’s performance is in stark contrast to London City where redundancies and a drive towards great space utilisation among financial services companies drove costs down by 7.3%.
Now in its fifteenth year, DTZ’s report assesses the main components of occupancy costs in 124 business districts in 49 countries across the globe, ranking each location based on annual costs per workstation. Occupancy costs are much more than just rent, and include outgoings such as maintenance costs and property tax. The analysis also takes into account variability of space utilisation standards by measuring costs on a per workstation basis rather than per square metre, as local customs vary.
The weakening macro outlook across the UK kept average occupancy costs per workstation stable during 2011, with a marginal average decline of 0.3%. There were marked regional differences, however, with occupiers in Birmingham benefitting from the largest cost savings with a y-o-y decrease of 11.5% to £4,250 per annum. This was followed by Edinburgh which witnessed a decrease of 4.2% to £4,790. At the other end of the scale, London’s West End remains the most expensive business district in Europe, and second only to Hong Kong globally, with occupancy costs climbing to £14,530 per workstation. Behind the West End, the UK’s next largest year-on-year movers were Glasgow and Manchester, both with 2.4% increases to £4,630 and £4,680, respectively.
The report highlights that 2011 saw minimal pressure on headline rents in all of the covered UK markets – with the exception of London where rents rose slightly. Therefore, where occupancy costs fell, this was largely attributable to improved space use. Birmingham witnessed the greatest year-on-year fall in utilisation space standard, which explains its sharp fall in total occupancy costs. Similarly, London City witnessed a 7.3% decrease in occupancy costs to £8,720, driven largely by corporate occupiers consolidating their available workspace.
Karine Woodford, Head of Occupier Research at DTZ, said: “After a year of relative respite, cost-cutting has returned in a big way with occupiers awaiting developments in the eurozone and looking to reduce space per employee. Consolidation has been a theme across the country particularly within the banking and insurance sectors. They are increasingly seeking occupational densities of one person per eight square metres, down from 10 square metres seen previously.”
According to DTZ’s report, occupancy costs in Bristol rose slightly in 2011 and it is now ranked as the fifth cheapest city in the UK outside London at £4,470 per workstation. It is followed by Leeds (£4,300 per workstation), Birmingham (£4,250 per workstation), Newcastle (£3,300 per workstation), and Cardiff (£3,310 per workstation). Globally, Bristol is ranked between San Diego and Auckland.
Andy Heath, Director at DTZ in Bristol comments: “The dynamics of the Bristol market are well set with falling grade A supply and since the start of the year an increase in active demand. However there continues to be an oversupply of grade B and grade C stock. These factors will further exaggerate the two tier market that we are currently witnessing, especially for grade A units of space over 30,000 sq ft, where there are only three buildings which can satisfy a requirement of this size. If a further increase in active demand for grade A space is witnessed, the prospect of rental growth in the next two years is not unfeasible, although in the interim the level of incentives will need to start reducing before this can occur. What is also encouraging is the number of grade B enquiries since the start of the year for 10,000 sq ft plus.
“However in 2012, Bristol will remain a good value office location with incentives of 12 months plus for five year commitments for lower grade stock.”
