Pictured above: David Tonks

Average occupancy costs in the UK will grow 2.1% year-on-year to 2015, according to the fourteenth edition of DTZ's annual 'Global Occupancy Costs: Offices' survey, published today.

Rental increases will drive the forecast rise in occupancy costs across the UK. Other outgoings, such as property taxes and service charges, are also set to increase. Although occupiers will continue to benefit from substantial savings in many markets over the next few years, UK average occupancy costs will have returned to peak 2007 levels by 2014 (£6,280), and will be 3.3% higher than peak levels by 2015 (£6,490).

DTZ's survey assesses the main components of occupancy costs in 121 business districts in 47 countries/territories across the globe, ranking each location based on annual costs per workstation. It includes rents and outgoings, such as maintenance costs and property tax.

Over the next five years, London's West End will overtake London City as the fastest growing market in terms of occupancy costs in the UK, and Europe. Recovering demand, combined with supply constraints following reduced development activity, will continue pushing up rents. Occupancy costs are forecast to increase by 5.1% (£3,670) per annum in the West End, to reach £16,590 per workstation by 2015. This growth will see London's West End retain its position as the second most expensive office location in the world, behind Hong Kong. Occupancy costs in London City are also forecast to increase above the UK average, by 4.1% (£2,080) per annum, to reach £ 11,490 per workstation by 2015.

The forecast increase in occupancy costs within central Birmingham is less pronounced than the growth expected in the London markets. Overall occupancy costs in Birmingham city centre are forecast to increase by 1.3% per annum on average between 2011 and 2015. As a result, the cost per workstation will not reach 2007 values (the previous peak) until after 2015. The increased competitiveness of Birmingham as an office location is largely attributable to the moderate rental growth and comparatively modest property tax uplifts compared to the central London markets.  

Martin Davis, Head of UK Research at DTZ comments: "There is a big difference in the forecast increase in occupancy costs over the next five years between the London markets and the UK regional markets. Strong growth in London, particularly in the West End, brought about by a short term supply shortage will mean that occupiers will see a faster increase in rental costs here than in regional cities. As well as rental increases, occupiers will see their outgoings increase, particularly as regards property taxes. The rating revaluation which came into force last year has impacted all office markets, but again, the impact is being felt more keenly in London, due to the greater rental growth that took place between the April 2003 and April 2008 revaluation dates."

David Tonks, Senior Director of office agency in Birmingham, said "Occupiers still have opportunities to make cost savings in UK office markets, particularly in the regions, and capitalise on available incentives to upgrade their property portfolios. Occupiers need to be aware of the impact of property tax increases, such as the 2010 ratings revaluation, and service charge increases, for example due to higher oil prices and environmental legislation, including the Carbon Reduction Commitment. Increases in these outgoings are harder to plan for than rental changes."

Across the regions the relative competitiveness of the larger regional cities looks set to remain largely unaltered over the next five years. Bristol, Manchester and Glasgow all have occupancy costs within 10% of Birmingham's. Because of this similarity there is little incentive to relocate between these cities simply on grounds of cost. However, as occupancy costs in London look set to increase more rapidly over the next four years, the case for relocating support functions to regional cities does become increasingly compelling.  By comparison cities such as Bristol and Glasgow are expected to see modest increases in occupational costs, chiefly due to arise in rents.  

David Tonks continued: "Within Birmingham the good quality supply of existing stock means that there is only modest upward pressure on rents in the current climate. However, this situation is likely to change due to the absence of speculative development and the resultant shortage in supply that is predicted during 2014 and beyond. Irrespective of occupational costs, the focus amongst occupiers upon efficient use of good quality space is expected to continue, thereby limiting the number of workstations required within any city centre location."