Does a modern business need an office space?

London Office Space 

The London commercial property market is booming (construction certainly is) when you consider the level of construction going on, especially in the City of London, you can barely walk along a footpath without being forced to cross the road to pass a construction site.  The numerous skyscrapers (details of London’s construction boom can be found here). With all this new office space being developed and with the level of connectivity our lives have access to which begins to remove the demand to be centrally located, a casual observer might expect commercial property rents to reduce, surely supply will outstrip demand? Added to the fact that Southern Rail’s capricious service has affected residential property value surely it must increase commuter’s need to work from home / use a company’s out-of-city office space.

Well, no, not really. Although office vacancy rates rose between 2017 Q1 and 2017 Q2, ticking up to a three-year high of 5.2% (vs. 3.1% in 2016), 2017 Q2 was the fourth consecutive rise in London office take up).  Rental values did not really change, rents in the City are still hovering around £70 per square foot per annum. What this suggests to me is that supply is outstripping demand, indeed Colliers is estimates that average rents across London to decline by 2.2%.  (source Colliers: London Office Snapshot July 2017).

Rental costs of £70 per square feet per annum may not sound like a lot and with rents expected to decline, having a City Of London Office space may not be a bad thing. However, that headline rate of £70 per square foot is a bit misleading. The Health and Safety Executive states that the total volume of the office (when empty) should be at least 11 cubic meters per person. For a typical room, with a ceiling height of 2.4 meters, this would require a floor area of 4.6 square meters. This is just under 50 square foot. Essentially an office for 1 person in the City of London should cost roughly £350 a year in just floor space alone, still feels a minuscule amount. However, add on the amenities, such as a reception, meeting rooms, security office, service charge… and all that £350 annual rent easily increases significantly more than tenfold. In fact, £700 per month per person is probably closer to the genuine cost.

City vs. the “Burbs”

This expense led to a debate with my colleague, Rob, about getting new offices. Should we stay in our current City of London office, move down the road, or go further out to the outskirts or just outside of London where it would be significantly cheaper.

So being good insurance type folks we drew up a list of points:

Benefits of staying in City of London:

  • Postal address – An EC3 postcode shows we are in the heart of insurance
  • Access to a highly skilled labour market – Graduates, international, experienced professionals all tend to gravitate working in the City.
  • Access to leading universities and various industry bodies.
  • Excellent transport links – To get around the country to visit our customers and business partners
  • Being based in the City means our business partners do not have to take a day out to visit us.
  • Spoilt for choice for lunch venues or after work drinks!

Benefits of moving out to the “burbs”:

  • Shorter commute times and cheaper commuting costs. I could even stop using Southern Rail (then I really would be living the dream!)
  • Office rent would be less than half the City costs (it’s about £30 per square foot and the amenities are cheaper!)
  • Not such a wide range of lunch venues or after work drinks, but it would be significantly cheaper then City prices.

Essentially, the advantage to moving out the “burbs” is cost, albeit a significant cost reduction.

But why do we need an office at all?

Technology has evolved to the level that remote working (working from home) is cheap, simple, efficient and often lends itself nicely to collaborative working approaches. Microsoft have invested heavily in their market leading Office software package launching Office 365 which puts working collaboratively with people in multiple locations central to the functionality of the revamped software.  The ability to screen share using tools such as Skype means I can even share and work on problems with my colleagues Rob and Tom as if they were sitting right next to me. Rob pushed back saying there is value in coming together physically as a group to create bonds, share ideas. Personally, I think you can achieve that with active use of group chat windows and if you really need then have a regular ‘day in the office’ (read pub!) to achieve that.  So why get an office at all?

Finally, I have almost unlimited access to my wide and varied tea selection at home, and if I worked from home every day, I can even tell my insurance company my house is always occupied driving significant savings for my home insurance, and so long as I am just doing clerical work at home that should impact my home insurance. Long term, I could even move my home to a sunny island … thou I think the wife and kids will miss the City life.

 

Sherdin

Actively trying to avoid Southern Rail.