Rental prices in the office space market have been falling since the start of the recession. Some areas have faired worse than others, for example the West End has seen the most significant falls – up to 40% down on the peak levels achieved before the credit crunch. As capital values fell and demand for workspace weakened, the market quickly fell heavily on the side of the occupier. Traditional tenants could barter for strong incentives such as rent free periods, while serviced clients were presented with rents for as little as Â£1.
This has meant that although many of the major providers, such as Regus, have grown during the recession in terms of the number of workstations that have been rented out as well as boosting profits significantly, profit gains possibly may not have been as high as they might have been if rental values had held up. Of course, if you are looking for office space, there is no better time to be shopping around. When a market has hit rock bottom, there will always be people looking for a bargain. And serviced offices offer unquestionable value for money, as well as flexibility.
So the question that providers will want to know is when will rents increase again? With costs remaining stable, and some (such as energy costs) going up in the last two years, margins have been squeezed. Centre’s will have been trying to fathom how the can work more efficiently. Promoting the virtual office product is one way that they can gain revenue without having to increase their costs significantly as the infrastructure is already in place. The larger, traditional office market does not see rents returning to the 2007 peak for as long as 4/5 years in some areas. In the end, rents of course will be decided by a question of demand vs supply. But with metropolitan areas of many cities experiencing oversupply, it could be a long while before rents start to increase?
What do you think? Will serviced office rents start to increase anytime soon?