Global demand for serviced offices is growing rapidly
The United Kingdom is the world’s largest market for serviced offices. Growth of the sector is set not only to continue, but accelerate, with optimistic suggestions putting the sector’s value in the United Kingdom at £120 billion by 2025.
Today, more businesses than ever are seeking more flexible and dynamic workplaces.
The changing reality of modern business is placing serviced offices as an attractive option for a wide variety of companies. Serviced offices typically come furnished, providing its tenants with ready reception services and use of business facilities, allowing businesses to get started immediately without the hassle of setting these up.
This paradigm shift is not just limited to new start-ups or small firms, but also larger businesses looking to maintain a presence in distant markets or establish a project office – as serviced offices offer a ready package of services and contractual terms that cannot be matched by conventional commercial accommodation.
Traditionally, office space has been aimed at large corporates with a large footprint. In the United Kingdom back in the 90s, businesses generally only had the option of a 25-year lease to secure office space.
This has changed in recent years, with long lease structures becoming less common. The average lease length is now between three and five years.
The modern worker is mobile and can work away from a central office hub. Email and conference call facilities make a fixed centralised office less important. Office-based start-ups require more flexible contracts, while established businesses increasingly use satellite offices or temporary spaces to accommodate expansion.
According to software multinational company Citrix, which provides networking and cloud computing technologies across the globe, 91% of businesses worldwide are adopting mobile work styles.
It is unsurprising, then, that the growth of the serviced office sector in the United Kingdom has been so strong.
The United Kingdom is the world’s largest market for serviced offices – a British success story. Serviced offices in the United Kingdom account for around 36% of the world’s serviced offices, with more serviced office centres than in the Americas, and more than in the rest of Europe, the Middle East, Africa and Asia Pacific combined.
Research firm Ramidus Consulting estimates that there are over 6,000 serviced offices operating in over 100 countries around the world. Just 50 cities account for 46% per cent of the total global market; of these 50, twelve are in the United Kingdom.
Serviced offices have grown by over 30% in the United Kingdom since 2008. London is by far the largest and most mature market, with Manchester the second largest, followed closely by Birmingham.
Current estimates using a conventional office leasing business model estimate that the United Kingdom’s serviced office market is worth £16bn. However, a dedicated serviced office model based on workplace rental income, plus the additional charges from supplying a range of services typical to such offices, puts the sector at £19bn, close to 20% more.
“Growth of the sector is set not only to continue, but accelerate, with optimistic suggestions putting the sector’s value in the United Kingdom at £120 billion by 2025,” commented Melanie Leech, Chief Executive of the British Property Federation.
Investment management company JLL has predicted that by 2030, office space around the world will become 30% more flexible.
Economic research firm Capital Economics estimates that the United Kingdom serviced office sector could see its value rise from £19bn to £62bn by 2025. On more optimistic projections it could increase in size over fivefold and be worth over £120bn, an echo of Leech’s predictions.
These predictions are based on favourable trends and developments that are having a very positive impact on the sector, making it a compelling investment proposition.
While the serviced office market in the United Kingdom is more mature than other markets globally, it is still underdeveloped, with large untapped potential for further expansion. Following current trends, the growth in demand for serviced offices is set to continue and even accelerate over the coming decade.
The office market in Liverpool
The city of Liverpool is currently seeing its current stock of office space dwindling, with barely any new supply in the pipeline.
The city’s overall take-up for the combined commercial district and city fringe area increased by 25% in 2017, compared to the previous year. Available office space has decreased by 25% since 2016, and a whopping 53% since 2014.
The amount of total office stock in the commercial district has decreased by more than a million square feet since 2014, a 20% decrease. This highlights the continuing reduction of office stock, and the lack of new build activity in the Liverpool office market.
There is now no supply of prime Grade A office space within the Liverpool commercial district. In 2012, 8.6% of total available office space was in the Grade A sector. B* stock, which is comparative in quality to Grade A, and key to filling its void, has fallen by 40% since 2014.
62% of the currently available stock is in the poorer quality and unrefurbished Grade C and D categories.
Investments in Liverpool offices totalled £87 mil in 2017, which would have been higher but for the lack of suitable space.
Liverpool’s huge growth in demand for office space has created lucrative opportunities for investors. In 2016, London-based real estate company GKRE reported a 76% rental growth rate for serviced offices in the city.
New serviced offices in the city are positioned to take advantage of this rapid growth in demand, and the correspondingly high rental yields.
Centric Serviced Offices, located right in the heart of the CBD, is a prime example. Its location opposite the Moorfield train station makes it extremely accessible, which will be of importance to any business tenant. It is professionally-managed, and is expected to offer investors good rental returns.
As one of the major cities of the Northern Powerhouse, Liverpool is set to grow in the next couple of years as billions of pounds are ploughed into the city. Already we can see massive redevelopment projects gearing up to push the city into a major economic powerhouse in the North.
The savvy investor will note Liverpool as a vastly untapped market in the office sector, with a huge potential for rapid growth over the next couple of years.
Do you think serviced offices are the workplace of the future? Drop us a comment below. If you’re interested to tap into the attractive potential that the Liverpool office market has to offer, don’t hesitate to give us a call at 03-2162 2260, or email us at info@csiprop.com.
Article by Ian Choong
Sources:
- Serviced offices: A new asset class, Capital Economics
- Commercial Office Market Review 2017, Liverpool BID
- Workplace of the Future: a global market research report, Citrix
- https://jll.turtl.co/story/57d80fbaba28b7e565271ddf
*Note:
Grade A space is defined as office space that was completed since 1st January 2013, Grade B space completed before 1st January 2013 or other accommodation recently refurbished or due to be refurbished, Grade C as unrefurbished but ready for occupation. Grade D is office space which could not be occupied without substantial refurbishment and where no plans exist for such refurbishment
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