Serviced office increase in London 14th May 2015

The number of serviced office occupiers taking up space across the capital has lifted by 67% over the past decade to occupy 5m sq ft of central London offices, according to a wide-ranging report from Deloitte Real Estate focusing on the growing but often under scrutinised property sector.

That space remains are relatively minor part of the entire London office picture at around 3.4% but the report said that the traditional cycle which has seen serviced offices perform better in economic downturns and then less well as markets improve is not playing out at present thanks to greater understanding of the sector and an increasingly diverse tenant base and offer.

The City has been the largest focus of this growing slice of the office market, with 34% or 1.7m sq ft of the market, up 21% over the decade.

This march towards more flexible short-term space away from traditional longer-term leases was being driven in part by fintech firms seeking space for their sales teams close to their clients.

The West End has a 28% slice of the market but this is shrinking as fringe east London locations have seen rapid increases with Docklands for instance seeing a 350% hike in serviced office occupiers over the period.

The report argues that it is a “misconception” that the comparative cost of serviced offices is much higher than a traditional office lease as serviced office occupiers often gain more flexibility in terms of size of space and length of contract.

Deloitte’s head of tenant representation Chris Lewis said serviced offices had undoubtedly established themselves as the “third leg” for the office market alongside ownership and traditional leases.

“Flexible workspace is becoming the norm for businesses who seek to deliver agility to their office space. The ability to take short-term, highly collaborative spaces in well located, quality buildings has helped to reposition this sector.”

Shaun Dawson, research manager, said significant serviced office leases at some of the capital’s most iconic addresses such as The Shard and 20 Fenchurch Street had been key to transforming the sector and it expects this to continue in the coming years.

“However, our research suggests that the current low volume of office space being built in London will limit overall growth opportunities for serviced office operators.”

The number of serviced office providers has also lifted by a quarter since 2004 to over 80 despite many of the bigger names such as MLS and MWB being swallowed up in the downturn as major players, most notably Regus, have swallowed up rivals. The report says 75% of the market remains with the top 10.

This research forms part of its London footprint series which studies office occupation in central London from 2004 to 2014.

Among its findings:

• The mature but still evolving market is becoming more acceptable for all types of businesses;

• Serviced offices have become a natural choice for first-time tenants, no longer a letting of last resort;

• the growth in entrepreneurial trends and the rise of the virtual office, which lead us to predict that demand for serviced offices will continue

• a greater understanding and acceptance of co-working space, which is expected to become the first choice for many small companies;

• the evolution of the offering from a simple desk solution to an innovative flexible workspace, giving rise to a new breed of operators and opportunities

The term serviced office in the report encompasses three types – serviced/flexible offices, co-working space, and virtual offices.