Empty offices pushing cost per UK employee to five-year high
The average cost to office occupiers of accommodating a full time employee rose to GBP4,638 per annum in 2012, according to research from IPD.
The news comes despite cost and space saving measures employed by companies to improve business efficiency.
For a UK office of 100 people, this means GBP463,800 is spent each year on accommodating its employees.
Cost per employee rose by 5.9 per cent between 2011 and 2012 due to rising rents, rates and maintenance costs, but also as companies continued to rationalise their workforce but did not manage to reduce space within the same timeframe, as space is often tied into longer-term contracts.
Average space per full time employee (FTE) actually went up as a result, for the first time in eight years, by 2.5 per cent, reversing a trend that has seen space for UK office workers shrink by 17 per cent since 2005, to just 10.2 square metres in 2012.
Teleworking, cloud technology and hot-desking have all allowed greater space efficiency in UK offices in the last five years, which has kept employee costs relatively stable. However, now easy space saving efficiencies have been taken, company rationalisations are outpacing slowing downsizing in office portfolios, which is pushing up the cost of the average full time employee.
According to the IPD Blue Chip Office Index, which measures 382 office buildings around the UK, though UK offices are the most space efficient in Europe rents per square metre rose by 1.9 per cent, rates by 6.1 per cent and maintenance costs by 3.7 per cent, all of which is contributing to increased costs per employee despite using less space.
In the UK, London saw the largest growth in cost per FTE, a rise of 16 per cent to GBP7,307,000, driven by 13 per cent increase in space per FTE, as redundancies in the financial services sector added more empty desks, while London also saw the country’s highest maintenance cost rises at 19.3 per cent.
London offices excluding West End and the City have also been the only ones to see significant positive rental growth in the last 12 months in the UK, at 4.3 per cent according to the IPD UK Quarterly Property Index.
Outside of the South East, employee costs were roughly half of those seen in London, though even costs per FTE rose by three per cent to GBP3,784,000.
UK maintenance costs are rising because statutory and other reduced maintenance strategies implemented in response to the financial crisis are not sustainable in the long term, with specialist management expertise needed to keep costs down. As a result, and for the first time in eight years, the proportion of rent in the overall property cost per employee has fallen below 50 per cent (to 49 per cent), with operating expenses accounting for 34 per cent and total rates 17 per cent.
Victoria Mejevitch, executive director and head of occupiers, IPD, says: “Over the last six years office occupiers have placed an increasing emphasis on cutting unnecessary space and operating costs, with a resulting decrease in cost per FTE. Though major attempts were made to curb repair and maintenance costs post financial crisis, few occupiers have been successful in implementing long-term strategy and the costs starting rising significantly in 2012.
“As a result of the second recession and subsequent headcount reduction programmes, space saving measures slowed down and occupiers are seeing rising costs per employee due to increasing rates, maintenance and rental bills – which they need more expertise in managing.”