Value of UK’s biggest serviced office providers’ property portfolio only drops by £1.4bn in 2020/21
The value of the UK’s biggest serviced office providers’ property portfolios has taken its first hit, after years of rapid growth - falling to £24.3bn from £25.7bn* in the previous year, shows a study by Boodle Hatfield, a leading property and private wealth law firm.
In the last five years the value of property owned** by serviced office providers has increased by over 300% from just £5.9bn. However, during Covid demand for space fell sharply as people started working from home and struggling tenants fell behind with rent payments.
Boodle Hatfield says the sharp decline in occupancy rates and delays with rent payment forced some operators to shed space. High-profile serviced office provider WeWork, which was seen as leading the expansion of the sector, had to cancel its first attempt at an IPO and was forced to go through a major financial restructuring.
It is assumed that the £1.4billion fall in the value of the sectors property portfolio is largely due to serviced office operators shedding some of the long leasehold property. However, despite the considerable challenges faced by service office providers by the pandemic Boodle Hatfield says the sector has “weathered the storm” surprisingly well.
David Rawlence, Associate at Boodle Hatfield says: “Despite the doom and gloom surrounding the office sector during COVID, the serviced office sector is leaving the pandemic in a healthy state with a consensus that a hybrid working model will see the sector continue to grow.”
“The UK’s tech sector, which have been major users of serviced offices has come out of the pandemic in an even healthier state than before COVID.”
“The pandemic also taught a lot of big office occupiers that having the option to increase and decrease their office space quickly is really valuable – that’s exactly what serviced offices sell. And this has recently been demonstrated by Currys decision to shutter its HQ in favour of WeWork flexible offices.”
“We expect to see more traditional office landlords to expand their own serviced office arms – such as British Land’s Storey brand. As well as more new entries to the market we are seeing consolidation amongst existing players as they seek to rapidly scale up.”
The Office Group and Fora have announced a merger, creating a company with more than 3m square feet of office space across the UK and Germany. IWG plans to merge its digital assets with those of The Instant Group in a deal worth £270m. Workspace has announced that it will acquire McKay Securities which will increase its property portfolio.
Landlords and serviced office providers are also experimenting with alternatives to fixed rents and conventional leases, such as revenue shared agreements which reduces the risk for the serviced office provider.
Serviced office sector’s portfolio of assets increasing over the years*
*Accounts filed as of 18thst March 2022. The accounts post-2019/20 contain right-of-use assets, after the adoption of IFRS 16
**Includes long term leases
Extracts from this article was first published in CityAM on Monday 4th April 2022.