Oxford sees sharpest increase in occupier costs for new-build offices

Property advisers Lambert Smith Hampton’s (LSH) latest annual Total Office Cost Survey (TOCS) has revealed that across the 54 surveyed locations, the average cost of occupying a new-build office in the UK fell by 1.3% over the 12 months to June 2020.

This is only the second time costs have fallen in the survey since the global financial crisis in 2008 and contrasts sharply with the 3.6% increase in costs in 2019. The fall was greater still for 20-year old buildings, down 1.6% over the year to June 2020.

But while total costs fell slightly on an average basis, there were notable contrasts between specific locations. Concerning new buildings, only three of the 54 surveyed locations saw growth above 2% over the past year. Oxford saw the sharpest increase, with occupier costs rising by 6.4%, followed by Manchester (3.9%) and Cambridge (2.4%).

In each of the above cases, upward shifts in prime rents were at the root of the overall increases in cost. In Oxford, the arrival of the Jam Factory, a high-quality refurbishment in the city centre, propelled prime new-build rents to a new high of £47.50 per sq ft in 2020, a jump of 19% on the previous level.

Cambridge remains the UK’s most expensive location outside London, having moved ahead of Maidenhead in 2019. The university city has seen several successive years of strong rental growth, with annual costs in a prime new building amounting to £9,350 per workstation.

Oliver du Sautoy, Head of Research at LSH, said: “While the fallout from COVID-19 severely impacted the UK economy during the first half of 2020, it is yet to be clearly reflected in occupancy costs.

“At the time of writing, COVID-19’s impact on occupancy costs is yet to be seen. In the near term, occupancy costs for buildings both new and old may reduce on the back of lower demand, reflecting reduced headcounts and surplus tenant space hitting the market.

“However, with greater acceptance of flexible working post lockdown, a growing occupier focus on quality over quantity in the future indicates that cost reductions will be most clearly seen for older, secondary office buildings.”

Ryan Dean, National Head of Office Advisory at LSH, added: “The implications of the pandemic on the future look and feel of the office have been well-debated in recent months. However, the pandemic’s possible implications for businesses’ location strategies are arguably no less important, and could be a key influence on demand in the next decade.

“But, with regard to location considerations, the pandemic does not necessarily spell a shift of strategy in one particular direction. Different corporate occupiers will come to their own view as to what steps to take over the years ahead, and contrasting approaches will be seen in the near and medium-term.”