Who read last week’s article by City AM reporter Kasmira Jefford on the last three areas in central London for companies to find affordable office space?
It’s true that square foot costs are skyrocketing in London, and other major markets around the world. As reported in the City AM article, London office rents “have reached record levels this year”.
This appears to be a huge problem for the SME community.
Many point to the free market principle of supply vs. demand as the driver of increased costs. Some analysts advise that public housing policy is encouraging a conversion of space from office to residential, creating a reduction in supply. It’s become a hot topic that is being debated among the commercial real estate sector and government officials.
While public policy may affect office space costs, proposed solutions seem to ignore the fact that times have changed.
We’re in a new economy.
My parent’s generation had to commute to the office every day because that’s where their computers were. In the past, companies took on expensive long-term leases in city centres and recruited talent by offering large corner window offices.
But today we’re in a digital, knowledge based economy. Companies today recruit talent by offering flexible working benefits, which increases productivity and saves costs. Mobile and cloud technology enables us to work from anywhere. As long as we have good wifi, we can take our desk with us.
Yet still, when people start businesses today one of the first things they look into is office space. Why is that?
According to The Association of International Accountants SME Snapshot 2015, out of 5.2 million SMEs in the UK, 57% do not rent office space. The number of home businesses in the UK has increased by 500,000 since 2010.
2008 was a wakeup call to the SME community. Gone are the days of overspending. Although we may be in a period of economic resurgence, it doesn’t make sense to return to the pre-recession luxury of expensive city centre office rents.
Now we’re mobile working and relying heavily on digital communication. Just walk into any coffee shop or pub and see the laptops open. But what do we do when we need to control our environment, when we need to meet face to face? Where can we go to deliver a client presentation, or meet with a partner, or when we need privacy for investment discussions?
People think they need to rent office space because where else are they going to meet and collaborate?
The Solution: Collaborative Consumption
The success of Airbnb has taught us to embrace a new economic model based on access versus ownership, whereby instead of owning an asset, a person or business borrows, leases or rents the asset from someone or a company who has excess capacity of it. This new model is called collaborative consumption, which has become known as the “shared economy“.
According to PWC, the UK shared economy is set to grow from £500m to £9bn over the next decade. UK government officials are already working to position the country as the European capital of the shared economy, after commissioning an independent study by Debbie Wosskow.
It’s time for London businesses to fully embrace the model. Why are we talking about a space shortage?
You see, companies in city centres, who have shifted their recruitment strategies to attract talent by offering flexible working, are faced with office footprints which are often underutilised as people work from home, or on the go.
So while it may appear we have a supply vs. demand problem in central London, in reality there is a lot of space to be unlocked.
Unlocking Excess Capacity
I believe sharing economy platforms can unlock this excess space capacity and is the solution to high office costs.
Space owners and SMEs alike can win in today’s new shared economy by utilising such platforms who match excess office and meeting space with people who need it. Space owners can monetise empty rooms they are already paying for, and businesses can have access to professional environments, on-demand.
Traditional office rates may be going up, but the sharing economy is the alternative. On average, businesses in London could make £30,000/year* by making their excess space available on a sharing economy marketplace – and with rates across London starting at £10/hour, the SME community now have access to affordable space options.
Businesses have a lot to win, and together we can succeed in the new economy by embracing collaborative consumption.
*Based on a room for 5-10 delegates booked at least 10 hours per week. See The Work Foundation ‘Working Anywhere’ study.