London v regions office costs 30th June 2017

Lambert Smith Hampton has published its Total Office Cost Survey (TOCS) guide to the total costs of office occupation revealing that the gap between London and the regions has begun to narrow having hit record highs.

The survey provides detailed cost information for office accommodation across over 50 locations in the UK. The cost figures are provided across 22 headings including everything from business rates to landscaping to waste management. This year’s results reveal that the gap between London and regional office costs has narrowed from last year’s all time high. Despite being the UK’s most expensive location, London’s West End core (i.e. Mayfair) saw the strongest fall in occupier costs of any location, down 9.6% cent year-on-year to £18,145 per workstation.

Elsewhere, the majority of provincial locations saw growth to varying degrees. Across the ‘big six’ cities of Birmingham, Leeds, Bristol, Manchester, Edinburgh and Glasgow, the average cost of a typical workstation now stands at 42% below London’s Midtown district, narrowing from 44% a year previously.

LSH reports: "While rents and landlord incentive packages have provided the main driver for cost movements, business rates account for a sizeable proportion of a business’s total occupancy costs, particularly for larger occupiers. Furthermore, the new transitional arrangements (England only), which came into effect following the Rating Revaluation in April 2017, have created no real winners." In areas where rental growth was strong prior to the antecedent valuation date in 2015, most notably in central London, the arrangements have "done little to shield occupiers from significant rises in their rates bills". The reverse is true for those locations where rents have shown limited recovery from the pre-recession level, with the arrangements preventing rates from falling in line with the market reality.

TOCS reveals Preston as the most extreme example. "Here, the difference between the actual phased rating cost in buildings with a rateable value over £100,000 stands 40 per cent higher than the unphased level." Looking at other key trends, reflecting rising inflationary pressures, day-to-day running costs have picked up over the past 12 months, having been virtually flat over the previous two years. Excluding rents and business rates, running costs have increased by 1.9 per cent since 2016, for both new and 20-year-old buildings.

Oliver du Sautoy, Head of Research at Lambert Smith Hampton, said: “While the softening in rental levels within some of London’s key sub-markets has driven a slight narrowing of occupier costs compared with elsewhere, the cost appeal of the UK’s regional cities over central London remains compelling – prior to the last recession in 2008, the discount was only 35 per cent compared to 42 per cent currently. “Despite the cost advantage, relocating existing staff on a large scale can be difficult, as HSBC’s major move to Birmingham has shown. That said, living costs are becoming more and more prohibitive for younger workers in the capital, so it is only a matter of time before London occupiers have to look elsewhere in the war for talent.”