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The London serviced office sector has grown beyond all recognition over the last decade, particularly with the arrival and aggressive expansion of two large operators, Regus and HQ Global Workplaces. Their phenomenal growth rates have prompted entrepreneurs and progressive property companies into launching new Business Centres all over London and the rest of the UK
The London serviced office space sector is expanding fast - operators often compete to acquire suitable buildings which are then converted and sometimes filling to 100% capacity within weeks of practical completion. A telephone survey of over 100 uk business entres undertaken in March 2001 showed that, despite continual openings, office vacancy rates were less than 10% on average. However, with over 500 companies currently providing serviced offices throughout the UK, commentators are questioning the demand for such an explosion in the number of "desks to let" in this sector.
The key question is - does current UK market demand reflect a permanent shift in thinking or are the business centres benefiting from an economy encouraged by venture capital backed start-ups?
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Some 40% of serviced office space enquiries received are from either start-up businesses or established companies setting up new divisions to capitalise on Internet technology. Another 10% are from companies seeking permanent UK offices, but, due to the lack of supply , have opted for a temporary property solution.
Given that 50% of the enquiries could evaporate if the UK economy enters a downturn and money is not being ploughed into start-ups, competition could drive rents down. The view held by many within the UK property industry is that, with, serviced office occupiers on such short notice, providers have no security of income whilst lease liabilities remain. However, we are witnessing a fundamental change with the "new economy" and a shift in working practices.
The long-term sustainability of the sector and the covenant strength of the providers has always been under scrutiny. In the past the defence has been that, as we enter a downturn in the economy, occupiers will not have the confidence to commit to longer leases and will opt for less risky flexible serviced offices.
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