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The Rise of the Serviced Office: How, Why, and Will it Continue?

Author: Flora/October 22, 2015

Serviced offices have risen hugely in popularity over the past few years, and the phenomenon shows no signs of slowing down. What might once have been thought of as a stop-gap solution for businesses, or a quick fix for start-ups, has fast become appealing to businesses at all levels – the flexibility and working environments a serviced office can provide are far more diverse, and luxury serviced offices in desirable locations allow many businesses to attain a level of prestige they might otherwise struggle to project.

But how and why has the popularity of serviced offices boomed so greatly in recent years, and is the trend likely to continue? Today on the LEO blog we attempt to answer these questions by examining recent research conducted by Deloitte Real Estate Insight into the serviced office industry. The report delved into office occupation in central London between 2004 and 2014 to deliver conclusions on the changes in the business property industry.

The Past

At first look, the concept of the serviced office seems an entirely modern phenomenon, likely to have developed alongside changes in contemporary working culture and the needs of the modern workforce. However, this could not be further from the truth: the serviced office has been in existence since around the 1980s in various forms. In the US, for example, serviced offices evolved from call centres for travelling salesmen, giving the mobile workforce a base from which to conduct business when on the road. Over the years the use and prevalence of serviced offices has grown and grown. By 2014, serviced offices in the UK were using 70 million square feet of space, housing around 80,000 businesses and 400,000 jobs and generating approximately £2bn to the UK economy.

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The Last Ten Years

Ten years ago, serviced offices were mainly found in the West End and the City, with the two areas respectively comprising 34% and 28% of all serviced office space in London. In 2014, the London market was still dominated by these two areas, but the City now holds a greater share; this can in part be attributed to the burgeoning technology start-up scene in the area, displacing the Square Mile’s reputation as a purely financial district, as the report points out, ‘much of London’s tech activity is concentrated in financial technology’, demonstrating the importance of the relationship between the two fields and the necessity of their respective locations.

The Present

Currently, serviced offices within central London occupy 3.4% of total office floor space, which is relatively low. This percentage is growing rapidly, however: in London, the serviced office market has increased by 67% between 2004 and 2014. Reasons for this growth are diverse; likely contributing factors include the 2008 financial recession, which rendered many businesses unable to own their own premises, and the changing styles of office work in modern business.

It is arguable that the prevalence of smaller start-up businesses over the last few years has created strong demand for smaller, more flexible workspaces to accommodate for their fluctuating staff numbers. A typical serviced office can provide a fully functioning workspace in a matter of days, and operators often allow space for growth and cutbacks for their businesses too; the intrinsic suitability of this model for small businesses has been demonstrated all over the UK as increasing numbers of start-ups move into serviced office accommodation. Additionally, larger businesses and corporations benefit from the quick set-up that a serviced office allows: as more large businesses open new offices or satellite branches in other locations, serviced offices allow them to run projects away from their main offices without the same overheads as purchasing or managing property.

The Future

The Deloitte reports predicts that the serviced office sector will continue to grow in the coming years as larger businesses in particular begin to adopt this type of leasing method, and small to medium size companies continue to use serviced offices to enable business growth to remain quick and simple.

The report also identifies that millennials will help to drive the demand for co-working space. The Deloitte Millennial Surveys have revealed that the younger working generation are looking for organisations that foster innovative thinking, encourage creativity and actively participate in society. As the report points out, in the modern office market many property-seekers work in the creative industries or digital fields, both of which benefit from the flexibility to grow quickly and to make use of casual or freelance staff.

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