Redundancies bite as City office costs drop

14 February 2012 | By Mike Phillips

Increased job losses caused City of London occupancy costs to drop 7.3% in
2011, but the West End again showed its economic resilience, with costs
rising 12.5%. The disparity in London's two main office markets came as
overall office occupancy costs in the Uk dropped by 0.3%, according to a
report from DTZ.

There were marked regional differences, however, with occupiers in
Birmingham benefitting from the largest cost savings with a year-on-year
decrease of 11.5% to £4,250 a year. This was followed by Edinburgh which
witnessed a decrease of 4.2% to £4,790. At the other end of the scale,
London's West End remains the most expensive business district in Europe,
and second only to Hong Kong globally, with occupancy costs climbing to
£14,530 per workstation. Behind the West End, the UK's next largest
year-on-year movers were Glasgow and Manchester, both with 2.4% increases to
£4,630 and £4,680, respectively.

The report highlights that 2011 saw minimal pressure on headline rents in
all of the covered UK markets - with the exception of London where rents
rose slightly. Therefore, where occupancy costs fell, this was largely
attributable to improved space use. Birmingham witnessed the greatest
year-on-year fall in utilisation space standard, which explains its sharp
fall in total occupancy costs. Similarly, London City witnessed a 7.3%
decrease in occupancy costs to £8,720, driven largely by corporate occupiers
consolidating their available workspace.

Looking ahead, UK occupancy costs are expected to grow by an average of 1.8%
over the next five years, reaching £6,356 per annum per workstation.
However, this will be just below UK average inflation of 1.9%, indicating no
increase in average real occupancy costs.

Karine Woodford, head of occupier research at DTZ, said: "After a year of
relative respite, cost-cutting has returned in a big way with occupiers
awaiting developments in the eurozone and looking to reduce space per
employee. Consolidation has been a theme across the country particularly
within the banking and insurance sectors. They are increasingly seeking
occupational densities of one person per eight square metres, down from 10
square metres seen previously