City of Westminster A Study of Small Offices in Westminster June 2008 DTZ Research 48 Warwick Street London W1B 5NL 2 City of Westminster A Study of Small Offices in Westminster Final Report by DTZ RESEARCH 48 Warwick Street London W1B 5NL Telephone: +44 (0)20 7408 1161 Fax: +44 (0)20 7643 6000 This report has been produced by DTZ Research in commission of Westminster City Council. June 2008 3 Contents Executive Summary....................................................................................................................6 1. Introduction...............................................................................................................................21 2. Central London Office Market Overview...................................................................................24 3. The size and characteristics of the small office market in Westminster....................................31 4. The main Westminster office sub-markets................................................................................36 5. The character of small office occupiers and main business clusters........................................48 6. The supply of small offices in Westminster...............................................................................54 7. The role of serviced offices.......................................................................................................69 8. Demand outlook for small business accomodation in North West Westminster.......................76 9. Conclusions..............................................................................................................................85 10. Recommendations....................................................................................................................94 4 EXECUTIVE SUMMARY Introduction 1. DTZ were commissioned by Westminster City Council to carry out a study investigating the small office market in Westminster. In particular, Westminster City Council wished to gain a more detailed understanding in terms of the amount, location, demand and type of occupier of small offices. The study was commissioned by the City Council in order to inform and provide evidence for its approach to the preparation of its Core Strategy and City Management Development Plan Documents for the Local Development Framework. The study covers the whole City of Westminster but has a particular focus on the Mayfair and St James‟s small office markets. Context and Purpose 2. The City Council wishes to maintain Westminster‟s stock of accommodation for small and growing businesses. UDP Policy COM 4 aims to maintain the vitality and diversity of economic activity in Westminster through the continued provision of „small offices‟, which the City Council regards as those with less than 250 sq m of floorspace. This policy applies in the Central Activities Zone (CAZ) and the North West Westminster Special Policy Area. 3. The supply of small offices within Westminster is deemed particularly valuable in accommodating Central London activities and supporting activities, which make an important contribution to the character and function of parts of the CAZ. 4. Since November 2003, when the Inspector, in his report into the UDP Inquiry commented that the small office policy was important, and should be retained, several subsequent strategies and reports have followed suit. Westminster‟s Creative Industries Final Report in October 2007 recommended that „…Westminster continues to protect existing small office/business units and continues to require an appropriate amount of small office/business units in new/redeveloped commercial premises through the planning process.‟1 5. The adopted Economic Development Strategy sets out a framework for the City Council and its partners to deliver a range of initiatives to support unemployed residents and businesses. This includes developing a strategy for Creative Industries based on the research contained within the Westminster Creative Industries report and to encourage the provision of more affordable business space for micro enterprises in Westminster. The Mayor supports this approach in terms of policies for developing London‟s economy.2 Furthermore, Draft PPS 4: Planning for Sustainable Economic Development contains the Government‟s desired objective for Local Authorities to provide a good range of land and buildings offering a range of opportunities for new and small businesses and start-up firms. 6. Policy COM 4 also refers to the provision of serviced suites of small offices which share centralised support functions, such as secretarial and administrative services and meeting rooms within a larger office building („Serviced Offices‟). It states that these also provide a 1 See UDP policy COM 4 – Appendix 7 2 In particular Policy 3B.1 of the Mayor’s Further Alterations to the London Plan. It states ‘…seek a range of workspaces of different types, sizes and costs to meet the needs of different sectors of the economy and firms of different types and to remove supply side blockages for key sectors, including the finance and business sectors…’ 5 valuable supply of smaller office accommodation to meet the needs of smaller businesses in Westminster. 7. With over 40,000 businesses located in Westminster, the City has a strong and extremely varied economy and offices dominate the commercial activity. Many large multi-national businesses from a variety of sectors have their headquarters in Westminster but there are many more small businesses that are important to the economic health of the City. Many of the fast-growing sectors of the economy are office-based, including the evolving internet- related activities and this, combined with employment growth and the impact of changing information technology requirements will continue to generate increased demand for better and higher quality office space in Westminster. Main Study Findings 8. An analysis of the compiled master database in Westminster shows there to be 6,976 office occupiers under 250 sq m (2,690 sq ft) in Westminster, with a total combined floorspace of 982,000 sq m (10.6 million sq ft). These small offices are located in 2,033 separate buildings. Thus of all the office stock in Westminster, estimated at approximately 5.2 million sq m in net terms, small office stock is equal to 18.9% of the total. The average size is 141 sq m (1,520 sq ft) per small office. 9. Of all the identified small offices, 1594 (23% of the total number of small offices) have been found to be being housed within a listed building. These small offices are housed within 495 listed buildings. 10. The media industry is the business sector occupying most small offices, followed closely by the financial, property and professional services sectors. By number of offices, these three sectors combined occupy almost four times as many as the rest, and an almost comparable amount of floorspace. 11. Between 1997 and 2007, Westminster City Council recorded a net loss of 306 small office units comprising 46,236 sq m of small office floorspace. This is comprised by the loss of 617 small office units (totalling 70,988 sq m) and the gain of 311 small office units (totalling 24,752 sq m). The figures for change of use in Westminster between 2000 and 2007 indicate that it is residential redevelopment of small office units which is responsible for most of this net loss 12. DTZ Research has considered a number of questions appertaining to the adequacy of the current supply of small offices and the operation of the existing COM 4 policy. The specific questions are as follows: Whether there is any indication of oversupply of small office accommodation in any part of Westminster? What impact has the provision of serviced office accommodation had on the supply of small office accommodation? How do small offices provide accommodation for both established and start-up businesses in Westminster? What is the likely future demand for small offices in North West Westminster? 13. The comments which agents and property owners have provided to us with regard to the small office policy suggest that it is not viewed in a favourable light. In general respondents 6 consider it adds further hindrance to an already difficult development process. Specifically, a number of objections have been raised: That there is no shortage of small office accommodation and therefore there is no need to restrict redevelopment of buildings thought suitable for, or occupied by, small office occupiers. That the growth in the serviced office market has supplemented what is already an adequate supply of small offices, and that this further underlines the adequacy of current supply, which undermines the need for the current policy. That office demand in Central Westminster (CAZ), a reflection of the success of London‟s „world city‟ economy, requires office redevelopment to improve the stock to meet this need. And that in this context this policy impedes this objective. The attempt to prevent market change (in this case rising rentals and property values as they impact small office accommodation) which displaces certain activities as others replace them is ultimately pointless. 14. The study has made a distinction between small office occupiers, companies which occupy discrete premises on specific leases, and small office buildings, which can vary in size, only a few of which are congruent with either a single or a number of small office occupiers, according to the definition fixed by the COM 4 policy. We interpret Westminster‟s