UK Office Occupancy Costs Rise To Highest Ever Levels
Office running costs have risen by 13% in the past year, with no imminent respite
The cost of occupying office space in the UK has risen to its highest level ever, according to property consultancy Lambert Smith Hampton (LSH). In its annual Total Office Cost Survey, LSH has analysed the total occupancy costs for offices in 54 key locations and revealed soaring costs across the board.
In response to inflationary pressures that have swept through the economy during 2022, the average cost of occupying new-build office space has increased by 13% over the 12 months to September 2022. This represents the steepest annual rise in the survey’s 25-year history.
The figure is even starker for older (pre-2002) office buildings, where levels of efficiency are correspondingly lower, with costs rising by 18% over the same period. Consequently, in many locations around the UK, energy costs for these buildings for the first time outstrip business rates liabilities.
Of the 22 separate cost metrics considered in the survey, rent is typically the most influential factor in overall office occupancy costs. However, given the widespread inflationary pressures facing the UK economy, this year was a clear exception to the norm as double-digit inflationary rises across a host of ancillary costs have rendered any rental growth almost insignificant.
While energy costs drove the overall increase in total office costs, a host of other metrics saw considerable growth when placed in their historic context. Strong inflationary pressures in the construction industry were reflected in 20% annual growth in fit-out costs, while in-house catering and printing/reprographics both increased by a substantial 28% year-on-year.
Top Five Cost Increases Across The 22 TOCS Metrics
| Annual cost increase (2021 - 22 survey) |
Cost (£ per sq ft) |
Share of total office cost |
|
| Energy | 194% | £6.62 | 7.3% |
| Catering | 28% | £2.65 | 2.9% |
| Printing & reprographics | 28% | £4.15 | 4.6% |
| Fit-out cost (10 yr annualised) | 20% | £6.80 | 7.6% |
| Repairs & maintenance | 14% | £4.60 | 5.2% |
Source: LSH RESEARCH
Increased occupancy costs for older buildings are driving a flight to quality with rental growth for new-build offices rising by 6%, up from 2.3% in the preceding year and the strongest annual rise reported in the survey since 2016. By contrast, rents for older building increased by a modest 3.2% since the previous year and experienced slower growth than newer builds for the fourth consecutive year.
Ryan Dean, head of transactional services at LSH, said: “We have now entered an era in which a host of previously negligible costs associated with office occupation are having an undue impact on businesses’ operational costs and, ultimately, bottom line”.
“As energy costs become a more influential factor in overall occupancy costs, it is no surprise that occupiers are seeking out better quality and more efficient buildings. This is good news from an environmental and sustainability perspective and many landlords and developers will be vindicated in their decision to make this a priority”.
Incorporating 22 individual cost metrics and spanning over 50 locations around the UK, the Total Office Cost Survey is a benchmarking tool to evaluate all relevant annual and one-off capital costs for the occupation of office space.
