Rising London property costs could lead to firms relocating, says study

Combination of having to pay higher salaries so staff can afford housing and paying increasing amounts in office rent is causing some to consider moving out

Rising London property costs in central London could lead to a wave of businesses relocating outside the capital, research has claimed. It used to be that more and more businesses were looking for an Office to rent in London but with the rising costs it is not a viable option for many businesses now so when looking for an office to rent now business owners are looking at offices slightly further a field where the annual rent is considerably lower.

A combination of having to pay higher salaries to staff so they can afford London housing and paying increasing amounts in office rent is causing companies to consider moving. Some businesses, including banking group HSBC, have already said they will open an office in another UK city such as Birmingham.

George Osborne tried to address the housing crisis facing London in the autumn statement on Wednesday by announcing a string of proposals designed to increase supply and affordability. The chancellor introduced a new help-to-buy programme for buyers in the capital, funding for housing developers and a new rate of stamp duty for buy-to-let investors, which is designed to help first-time buyers find a property.

However, research from property agent Savills claims the average cost of an employee has risen to more than £50,000 a year in central London, compared with an average of £33,695 in the rest of the UK.

This cost in London includes just over £35,000 in wages, but an additional £15,000 per work station in rents, rates and service charges. The property costs in London are three times what they are in the regions outside the UK capital

Mat Oakley, head of European research at Savills, said: “Many occupiers are already looking at smarter ways of accommodating increasing numbers of workers in the same space to minimise costs, but we are also seeing a growing number of businesses looking at relocating workers to other locations with lower property costs to minimise their overheads.”

Additional research from the company shows that a rise in property costs is not being matched by a rise in output. In the last five years, rents in the West End have risen faster than output in nine of the 12 key sectors, with only companies in the creative and technology industries increasing their output at a faster rate. Average office rents in the West End are £106.91 per sq ft, while in the City it is £75.50 per sq ft, the highest ever.

Oakley said: “Most industries that we examined have seen an increase in output over the past five years, but for the majority this has been smaller than their rise in rents, implying that having a presence in central London is becoming less affordable for companies in some industries. We’re unlikely to see a mass exodus from central London – many large companies accept that a City or West End presence is vital for attracting talent and raising profile.”

He added: “Nonetheless, we do expect to see more organisations exploring the
opportunity to split their operations between low and high cost centres, both in terms of staff and property costs. For smaller companies and startups, the fact that central London rents now outpace growth in the majority of sectors may lead to them looking at whether they can secure a cheaper rent elsewhere in Greater London.”

Some companies have examined alternative solutions to relocating outside London. Deloitte, KPMG and Starbucks, for example, are helping fund the property costs of their staff. Starbucks is offering loans so staff can pay deposits for a flat, KPMG has agreed preferential mortgage rates with banks, while Deloitte has bought flats in east London that it will rent out to staff.

Source: TheGuardian