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Total Office Cost Survey 2016

Gap between London and regional office costs reaches a new high

17/06/2016

The relative expense of business space in London compared with other UK centres has reached record levels, according to new research from Lambert Smith Hampton. This is expected to encourage increasing numbers of occupiers to look at locations outside of the capital.

Lambert Smith Hampton’s Total Office Cost Survey (TOCS) 2016, published today, reveals that strong rental growth in both London’s traditional office districts and emerging business locations is the main cause of this. In contrast, while rental growth is making a more meaningful return in core regional cities, rents in these locations typically remain lower in real terms than they were at the peak of the last cycle in 2008.

Citing London’s Midtown district, the cost of occupying a new-build development in this area now stands at £127 per sq ft per annum, a new high and 78% more than an equivalent building in the UK’s ‘big six’ cities (average of Birmingham, Leeds, Bristol, Manchester, Edinburgh and Glasgow). This compares with a more modest 55% in 2008, prior to the last recession.

Oliver du Sautoy, Head of Research, at Lambert Smith Hampton commented: “While all locations bar one have seen a rise in occupier costs since 2014, the most notable feature of 2016’s survey was the extent to which this growth has varied between locations, linked to divergent patterns in rental movements.

“At one end of the spectrum, we’re seeing double-digit growth in occupier costs in Central London’s emerging fringe districts and parts of the South East while, at the other end, Aberdeen was the sole location to experience falling costs, on the back of plummeting oil prices.

“The strong rates of rental growth witnessed in some locations will put further pressure on occupier costs moving forward. Business rates liabilities in these areas may also rise sharply when the 2017 revaluation comes into effect, and it is quite plausible that sharp rate rises will contribute to a dampening of rental growth.

“The financial case to relocate out of the capital is arguably as compelling as it’s ever been. The relative cost parity that once existed between Central London’s fringe locations and the UK’s core cities has vanished. With occupiers having to look further afield than the capital to reduce costs, the UK’s core cities are well-placed to benefit.” 


 
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Oliver Du Sautoy
Head of Research

020 7198 2193

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