Jun 15, 2015
Office rents in London have risen quite dramatically over the last 12 months. The simple explanation for this is that the demand for office space in London is far outstripping supply. Recently, occupiers have struggled to find suitable office space and negotiate affordable rents. Two solutions to this problem have been co-working and serviced office space but neither are the perfect option for many.
The serviced office industry has seen occupancy levels rocket to more than 95% recently. It is certainly popular with start-ups and SME’s but costly in the long run and often mean at least 2 moves before tenants secure long term space. In addition, the square foot per person is generally less than what one would expect in a conventional office space where you get more for your money.
Co-working is certainly popular in the TMT (tech, media and telecommunications) sector but is often not suitable for all companies and there can be logistical complications if one business runs into financial trouble or wants to dispose of its interest in a property but the other does not.
Because of the more compact nature of serviced office space and the cost of relocating as well as the fact that most leases are now granted outside of the Landlord and Tenant Act 1954 i.e without security of tenure and the right to command the market rent when a lease is renewed, many companies with offices in excess of 2000 square feet are finding that the only option is to accept the rents being demanded by landlords who know that after a short void period they will almost certainly command the rent that they want for their office space.
There are opportunities for tenants to find good deals still but they need to start the lease renewal process and at the same time start looking for new offices earlier than they might otherwise have done in the past and if they do want to relocate, commit to a new lease of the office whilst there is a little more of the existing lease to run that they might like. It means that there is a balancing act of weighing up the saving of the new office over the cost of having liabilities on two premises for a short period of time.
Tenant’s who would like to stay in their exiting premises will also benefit from starting the search early because this can be used as leverage against a landlord. Even with the expectation of a short void, landlord’s do not like any uncertainty and a new tenant means an unknown covenant, a new rent free period, dilapidations costs which cannot be recovered, agents fees and legal fees.
As the saying goes “the early bird catches the worm.” A tenant should be in contact with their landlord 12 months before the lease expires in order to negotiate the terms of a new lease. Whilst some landlords may not be willing to discuss the matter that early, many will. You should also start to search for suitable alternative premises at the same time because many properties are snapped up before they hit the open market.
by Adam Myeroff
This news was brought to you by Stuart Neils, commercial property consultants and surveyors with over 40 years experience specialising in search, negotiation and project management exclusively for tenants.