Source: Savills Research. Percentage change in London City and West End commercial rents compared with industry output over the past five years
It’s hard to categorically say whether commercial rents rising at a faster pace than occupier output have rendered parts of London unaffordable to businesses in certain sectors, as it’s all relative. For example, a 60 per cent increase on a £2 million rent bill would still, arguably, be reasonably affordable to a business which posts a 20 per cent increase on a £1 billion output. But the widening gap between rent and output implies that rents for some, in certain areas, could be moving out of reach.
However, there’s unlikely to be a sudden swathe of companies upping sticks and moving all their London operations elsewhere: a lot of organisations opt to swallow high Central London rents in return for the benefits of having a high-profile presence that attracts both business and talent. What we are more likely to see is more organisations following the lead of Deutsche Bank and others and ‘northshoring’: splitting operations between cheaper locations (whether regional cities or outer London) while retaining a Central London office.
With combined rent and property charges for a worker in inner London now over £15,000 – taking the total cost of a worker based there to over £50,0000, compared with the national average of £33,695 – for many it will make sense to rebalance their workforce across locations which have lower property and staff costs.