UK office costs increase 2nd February 2016

Office occupancy costs are increasing across the globe as the service sector accelerates away from the recession, with eight UK cities featuring in the top 50 priced prime office locations.

CBRE’s “2015 Global Prime Office Occupancy Costs” survey, prime occupancy costs in the world’s office hotspots rose by 2.4 %. The survey ranks the 50 top priced prime office locations based on total occupancy costs (rents, business rates and service charge).

In the UK, London is the most expensive market – in fact, it tops the global table - with costs of almost £180 per sq ft in the capital’s West End, says the agent. Birmingham is ranked 35th in the table, with office occupancy costs of £46 per sq ft, and up from 39th position at the close of 2014.

Ashley Hancox, executive director in CBRE’s national offices team, said: “Our research shows that the service sector has enjoyed its fourth consecutive year of growth and this, in turn, has driven the demand for prime office space and rental increases.” “Nowhere is this trend more evident than in Birmingham. In 2015 the banking and finance sector alone accounted for 30.4% of Grade A office take-up in the city. This compares to an 11.3% average between 2010 and 2014 and is even ahead of 2013, the year Deutsche Bank took a lease on Five Brindleyplace. That year the sector accounted for 24% of take up.”

In the regions, Manchester is the priciest office location: renting an office there will set you back £49.50, according to CBRE. This places the northern city at 30 in the table. An annual rise in costs of 9.4% was the fifth highest across all the 126 markets surveyed. Ashley said: “The main cost differential between Manchester and Birmingham is rents. In Manchester, headline rents are now £33 per sq ft, while in Birmingham we have yet to breach £30. Birmingham remains the only city in the UK yet to return to pre-recession rental highs. In the short term this makes the city good value for money.”

However, Ashley believes it won’t be long before Birmingham closes the gap on Manchester, which last year saw occupancy costs rise by 9.4%, the fifth highest climb in the world. “At almost one million sq ft, office take up in the city in 2015 was the highest on record. This has left us short of brand new Grade A stock. Whilst it’s encouraging that there is one million sq ft of office space under construction right now, it won’t be delivered until mid-2018 at the earliest. “It’s inevitable that the squeeze on space will force rents north: it will be interesting to see whether the tipping point will be on a pre-let or on one of the re-furbished schemes – including 55 Colmore Row, 2 Cornwall St and the Lewis’s building. “Rising construction costs will also drive up costs – rents now need to be in excess of £30 for financially viable speculative development.”

Edinburgh (33rd) Aberdeen (37th), Glasgow (38th), Leeds (39th) and Bristol (42nd), also feature in the table, making the UK as a whole one of the most expensive places to locate an office.