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Rising London costs, force businesses out

Increasing costs in London, is leading to an influx of businesses relocating outside of the capital to more affordable areas.

This wave of workplace relocations, is due to a combination of higher salary pay (to meet the London living expenses) and an increase in office rent. HSBC have already confirmed that they will open another head office in another UK city such as Birmingham.

Recent research from property agency ‘Savills’ has claimed that the average cost of an employee in central London has now reached £50,000 compared to an average of £33,695 in the rest of the UK

The estimated London expenditure includes:- £35,000 salary and an additional £15,000 in workspace rent, station, service charges and furniture. These property costs in London, are three times higher then 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 ‘Savills’ shows that a rise in property costs is not being matched by a rise in output. In the last five years, rents in London’s 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 square foot, whilst in the City, it is £75.50 per square foot.

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 start-ups, 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 seeked alternative methods to relocating outside London. For example Deloitte, KPMG and Starbucks, are helping fund their staff’s property costs. Starbucks are offering their staff deposit loans for a flat, KPMG has agreed preferential mortgage rates with banks, while Deloitte has bought flats in east London that it will rent out privately to its staff.

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