Own an office property? You may have to work harder to let it in 2012 – IPD
Occupiers have already reduced their office space requirements as they seek to drive down costs. The ongoing effects of portfolio rationalisation, flexible working and more efficient use of space, coupled with the subdued economic conditions, imply even more difficulties for growth in the offices sector, says the IPD. Property owners may need to do more in order to let their office space, it warns.
The IPD, which plans to unveil the full IPD Occupiers Blue Chip Office Index in July, says its consultative index released shortly before Christmas shows that blue-chip occupiers in the IPD databank have already cut the costs of their offices by 15%. It says average space per person has fallen on average by 4% per annum across all UK regions as companies have rationalised their property portfolios and have made more efficient use of space. The average net internal area per person is now around 10 sq m, it adds.
Glenn Corny, global product manager for IDP occupiers, says “what we see here is the culmination of aggressive cost control, the move to open-plan working, and extensive portfolio rationalisation”. He expects that, with most organisations introducing some type of flexible working pattern, the demand for space will continue to reduce and that this will remain the main lever for cost control – which has wider implications for the UK market for office space to buy and to let.
Corny says office owners and managers should take note of this trend. “Incentivisation and active management have already been used to keep tenants, but this latest data shows they may need to do more to let space. Offices need to offer efficient floorplates and low running costs.”
The IPD says total property costs have only risen by £23 per sq m since 2005, which works out at 1.1% per annum – well below inflation. Rates costs have risen by 29% and operating costs have grown by 15% over the same period (including energy prices and maintenance costs), but falling rents mean that the overall cost has only risen slightly. “Total costs are therefore what matters, and concerns over future increases in the cost of energy are now clearly driving the demand for more energy efficient buildings,” the IPD notes.
Corney concluded, “In the last five years the fundamentals underlying total property costs have changed, with rents falling (by 7% as a proportion in five years) but operating costs rising. We have released this index because the property industry needs a barometer of how the costs of occupancy and patterns of space use are changing for major space users, especially in the current market.”
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