Companies overspend on office space by £8.1bn

07 April 2009

Occupiers will pay up to £8.1bn too much for their office space this year compared with 2008 unless finance and property directors take action to reduce costs, according to a new study from The Actium Consult Total Office Cost Survey 2009 (TOCS).

The study found that average property costs have fallen by £744 per workstation - the total office space needed per person – compared with 2008. Occupiers, however, are not realising the savings.

Matthew Symes, Managing Director of Concerto Consulting, which sponsored the research this year, argues that financial directors can avoid some of this potential overspend. “The findings show that financial and property directors have a once in a generation opportunity to take advantage of current market conditions and reconfigure their property portfolios. It is a buyers’ market; occupiers can ask for shorter and more flexible lease arrangements and expect to get them. The age of the flexible property portfolio is here. Companies focusing on headline rent as their main indicator of office costs are only considering a small part of the equation. It is surprising how many companies do not focus on total property costs with the importance they deserve. A more informed approach to managing property costs will yield greater efficiencies. Companies need to be aware of specific cost reductions which they can implement and be armed with facts and data which can be used to support their negotiations with their landlords.”

The 2009 survey also found that:
.. Although net effective rents have fallen across the country, the relative cost of property in central London is now even greater than the average cost outside of the capital (a 40% difference in 2009 compared with 34% in 2008). This growing gap means that it now makes even more sense for occupiers who want to cut costs to consider relocating out of London.
..Workstation costs in the core of the West End now equate to 36% of average London salaries compared with 20-25% elsewhere in the UK.
..Net effective rents, which take into account the effect of rent-free inducements, have reduced by 16% on average across the country over the past year and by 30% in London’s West End.
I..n more than 80% of the locations in this study, landlords are offering a rent-free period of 21 months or more – up from an average of 12 months last year
..The cost of construction of new offices cannot sensibly be recouped through current rental levels in over a third of the locations in the study.

Further information on TOCS can be found at www.tocsurvey.co.uk.

Notes to editors

1. The annual Total Office Cost Survey (TOCS), produced by Actium Consult, is now in its 12th edition. Widely used by occupiers, corporate real estate teams, agents, developers and government, it is the most comprehensive study of its kind. The survey of 50 different UK locations highlights the true cost of property to business, eschewing the blunt analysis offered by simply comparing headline rents. The TOCS methodology takes into account net effective rent (the headline rent reconfigured to take into account rent-free periods and other rental incentives), rates, hard and soft FM (insurance, utilities, security etc) and annualised costs (furniture, fit out).

2. TOCS derived its figure of £8.1 billion by evaluating the median reduction in costs per workstation in 2009 compared with the 2008 study - £744. This saving was then applied across the 11 million office workers across the UK.

3. Matthew Symes, Managing Director of Concerto Consulting, has 20 years experience advising major organisations on their property strategy. He is a regular advisor to National Audit Office and heads up a number of property efficiency programmes for the BBC. Concerto Consulting is also currently leading the Ministry of Justice’s estate strategy.

4. Actium Consult is a strategic consultancy advising on real estate and workplace, helping both private and public sector clients with portfolio efficiency.

For further editorial information please contact Graeme Buck / Emily Luscombe, Camargue, tel 020 7636 7366.