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The most expensive area to lease an office in London is in the West End. This has caused many companies to up ship and set up an office further East. For Media Company’s the trend is to be in either Clerkenwell or Shoreditch in a converted warehouse with wood floors and exposed brickwork. Demand for the ‘quirky’ office space in these areas has gone through the roof and has seen rents double in the past couple of years with rents being commanded north of £40.00 per sq ft.
With rents rising rapidly and showing no sign of stopping, it may seem that in the not to distance future, that it might not become the better value option. However one of the main reasons that makes acquiring office space in Clerkenwell and Shoreditch cheaper, is the level of business rates payable to the council. Business rates payable in Shoreditch and Clerkenwell range from £7-12 per sq ft whereas in the West End they tend to be between £18-£30 per sq ft for media style properties. This higher level makes a considerable difference to the all in cost per annum of leasing an office.
The Rateable Value of an office space dictates the level of rates payable by a tenant each year. This is worked out by a multiplier which is set by the Valuation Office, this year the multiplier is 45.8% of the rateable value. The Rateable Value is set every 5 years and is based on the value of the space 2 years before. For example Rateable Values were last set in 2010 and were based on values in 2008.
This reason why rates are so low in areas such as Clerkenwell and Shoreditch is because in 2008 when rates were assessed these areas were nowhere near as desirable, commanding low rents keeping the value. There is a worry from some property experts that when Rateable Values get reassessed they will rise so much that many tenants will not be able to afford the cost if their lease and default on their rent, which could also see a drastic slowdown in rental growth and the investment value of properties. The next date for Rateable Values to be set has been pushed back to 2017 therefore the trend to move East is set to continue for the time being.
Morgan Pryce is a specialist tenant acquisition agent with offices in Oxford Circus and the City. Morgan Pryce specialises in search, negotiation and project management and works exclusively for tenants.