With total property costs (rent, business rates and service charges) continuing to rise in Central London, more and more businesses are seriously considering relocating outside the M25.
The idea of ‘decentralisation’ isn’t a new one, but momentum is starting to build, with companies either considering wholesale relocation or splitting operations between ‘front of house’ (staying in London) and ‘back office’ functions (moving out).
But these decisions aren’t always solely motivated by cost. After Central Lonon, the M25 office market is one of the most active in the UK, attracting occupiers from across the world who can draw on the high catchment of an educated and highly skilled workforce. Furthermore, with a choice of high-quality office space ranging from large business parks with lots of amenities to town centre schemes with great public transport, occupiers have real choice in meeting their property needs.
Maersk’s letting of 47,000 sq ft at Point, Maidenhead, was the first major instance of decentralisation this year. Although it already had a small presence in the town, the company relocated its entire IT division from Aldgate, where current grade A quoting rents are £50 per sq ft, cutting its businesses real estate costs by approximately 30 per cent.
Other businesses are also choosing to move back office functions out of the Capital. Hammerson, for instance, partially relocated in 2014, moving its back office support staff from Mayfair to Reading.
This activity has the potential to trigger a rental re-pricing in regional markets as Central London occupiers start to pay premium rents relative to the local market. Hammerson, for example, is paying a record rent of £33.50 per sq ft. This was 11 per cent higher than the previous highest Reading rent in 2014, but it's still 36 per cent lower than the rent at the firm’s King’s Cross office.
However, while occupier activity driven by decentralisation may be growing in the Thames Valley, it still plays second fiddle to churn from existing South East occupiers. Savills research found that the average tenant relocation in the area is just 7.6 miles for Grade A office space over 20,000 sq ft.
What’s clear is that both existing occupiers and those moving from Central London are focused on Grade A office space, however far they might be travelling and whatever the particular function of the business.