As London Office Costs Increase, How Far Does £750,000 Stretch?
Date of Article
Dec 22 2016

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Carter Jonas, the national property consultancy, has revealed in its latest research what £750,000 per annum can get an office occupier in London and the South East. As London office costs have increased, businesses are looking further afield to fulfil their office space requirements to reduce overheads. Occupiers in Hammersmith, the Docklands or Stratford can afford more than double the quantum of space for their money than could be leased in the West End. An annual rent of £750,000 secures just 6,000 sq. ft. in Mayfair – although this is a larger area than could have been leased last year at 5,882 sq. ft. for the same cost – compared with 11,111 sq. ft. in Holborn, 12,605 sq. ft. in Battersea and 16,667 sq. ft. in Stratford.

Darren Yates, Head of Research, Carter Jonas said:

“After employees’ wages, occupational costs are usually the second largest overheads for a business. £750,000 a year is the typical amount of rent paid by medium-sized businesses with a turnover of around £5-10 million in the south east of England. While not an insubstantial amount, our latest research shows just how far £750,000 could stretch, should occupiers look to alternative locations beyond Prime Central London.

“Over the last few years, new business locations have emerged across London disrupting traditional locations and challenging the historic business hubs. The Aircraft Factory in Hammersmith is a good example of high quality accommodation where businesses can afford more than double the amount of space than if they were based in the West End. Additionally, significant investment in infrastructure across the capital is contributing to the emergence and attractiveness of new business locations. This is illustrated by one of the most high profile moves this year when Apple took 500,000 sq. ft. at Battersea Power Station thanks in part to the new  Northern Line extension.”

Outside the capital but within the M25, Crawley/Gatwick and Watford offer the best value for occupiers, providing over four times the amount of space compared with the most expensive offices in Mayfair. Beyond the orbit of the M25, Basingstoke, Oxford and Slough offer the best value for money, providing 33,333 sq. ft., 28,846 sq. ft. and 27,778 sq. ft. respectively for the same rental outlay.

Michael Pain, Head of Tenant Advisory, Carter Jonas said:

“Central London office costs, which have grown substantially over the last few years. A large proportion of the market will see significant above-inflation increases in business rates as a result of the changes that come into effect from 1 April 2017.  Inevitably, occupiers are looking for cost saving solutions and questioning the need to retain all of their business functions in Central London. Fringe locations, such as Hammersmith, the Docklands and Stratford, offer much more bang for your buck and we will likely see more businesses move all or some of their operations to these areas over the course of the next 12 – 18 months. 

“Indeed, a trend is beginning to emerge across a range of business sectors: the moving of non-core operations such as IT, HR and accounting functions to lower cost locations on the periphery, allowing companies to devote more resource to keeping fee-earning roles in central locations, in close proximity to clients.  This ‘spoke and hub’ accommodation strategy is likely to become more popular once the Elizabeth Line is up and running in 2019 – opening up the cheaper Thames Valley market while providing a direct link to the key Central London business districts including the West End, Midtown, City and Canary Wharf.”

Click here to view The office affordability in London & The South East infographic.