Today’s offices market is drawing parallels with the 1990s and many are questioning whether we could see the same level of mass decentralisation from London as was experienced 20 years ago.
Similar market pressures exist. There has been limited new office development while rents, particularly in city centres, continue to increase.There is a growing popularity of the back office concept and, just as there was an influx of US businesses in the nineties, so today we're seeing significant immigration from Asia businesses.
However, we believe mass decentralisation from the capital will be mitigated by factors not seen 20 years ago and an outward movement could be a local story as well as a national one.
One reason is the significant investment in infrastructure and improved transport that has made London a lot bigger in terms of capacity. Greater London is creating strong competition for the regions, with Croydon, for example, offering companies large, Grade A floor plates at £30-35 per sq ft (£323-£377 per sq m). Rents at this value were previously unachievable without looking outside London.
But it's important to bear in mind that London-based businesses considering a relocation outside of the M25 are often looking for rents sub £35 per sq ft. The cost of staffing can also play a part, with savings of up to £10,000 per head to be had outside London (on top of a potential property saving of £10,000 per head).
This is why it's imperative to offer a deep understanding of micro locations in order to meet occupier requirements. Regional city offices have become far more sophisticated than they appeared to be in the 1990s, but they continue to differ significantly from London’s offices market. The idea of businesses focusing on central locations to attract and retain staff, for example, is largely a London story: as soon as you’re out of the capital, occupier preferences shift.
Rather than proximity to retail, leisure and public transport hubs or bike storage, employees in the regions, who often drive to work, want parking provisions and easy access. By recognising this, you can see a strong argument for development opportunities on the outskirts of regional centres.
Overall there are encouraging opportunities across the new build and refurbishment offices market in Greater London and further afield. A local level of decentralisation also opens up possibility for office development in town, edge of town and out of town.
With occupational demand across the UK continuing to improve, the investment market is witnessing a knock-on effect. The London offices market is leading the pack in terms of investor interest, however we are seeing money, both domestic and international, chasing key regional assets. A degree of this is frustrated capital priced out of London while pull factors such as encouraging rental growth prospects in regional cities, and a reduction of stock through Permitted Development Rights for Office to Residential, are attracting others. While still wider than average, the gap between prime and secondary yields is narrowing.