London has always been an attractive location for businesses to base their operations. As the UK’s capital, it offers excellent investment opportunities, along with a thriving customer base and it also gives businesses a more prestigious image.
However, the cost of setting up a business in this prime location cannot be ignored. The price of commercial property in London is notoriously high – something many start-ups simply cannot afford.
Here, we’ll look at business space development in London and how companies are managing to afford to set up in the city.
How Brexit affected commercial property prices
Late last year, it was reported that the Brexit vote had caused a 15% drop in London’s commercial property value. This in turn led to a number of businesses closing their London based offices as they wait for the market to improve. The effect on the market had been described as on par with the downturn that was experienced early in the 1990’s.
However, the crash in the commercial property market had also provided an opportunity for businesses to buy. Office space in the capital was slightly lower-priced, giving more businesses the opportunity to cash in.
Now, investors have returned to the capital, with the first quarter of 2017 showing record activity within the real estate sector. Many of these have been foreign investors however and when it comes to UK based businesses, more than ever before are choosing to rent out office space in London and it isn’t hard to see why.
Could renting be better than buying?
There’s a lot of advantages that come from renting out office space in London. While there has been a current drop in the market index, it is still much more expensive to buy than it is to rent.
The majority of businesses, particularly start-ups, are choosing to rent out office space due to the cost savings it provides. Serviced office space is especially gaining in popularity, providing everything a business needs. They don’t just offer affordable office space in prime locations – they also come with high-tech equipment. This makes them a particularly popular choice for start-ups and small businesses.
There are very little overheads to worry about with serviced office space. When you buy a commercial property, there isn’t just the initial high deposit and mortgage to worry about – there’s also the cost of equipment, utilities and insurance to worry about. With rented space on the other hand, you only have the monthly rental to think about, which tends to include utility bills and the equipment you’ll need.
So, financially it certainly makes more sense for businesses to rent out office space, rather than buy premises in London.
Overall, the commercial property market has seen a lot of changes over the course of the past couple of years. Foreign investors have seen an opportunity to cash in on the uncertainty after the Brexit vote, but UK based businesses are preferring to rent, rather than buy.