Council Seeks to Save on London Office Rental Rates with Sales Bid

In the wake of plans to slash council budgets up and down the country, Southwark Council‘s intention to buy their currently leased London offices for £150m might seem a little extravagant. But in reality, considering London office rental rates and many other factors, such a move could be highly beneficial for the council.

 

 

The Tooley Street office property at Tower Bridge, located in the shadow of the iconic Shard, has recently been put up for sale for £150m by HSBC Private Bank. Despite interest from overseas investors, the council reportedly managed to beat off competition with its own offer and secure a deal on the property, subject to further approvals from the council cabinet.

 

Buying Means Increased Flexibility

 

If the deal goes through, the council would gain ownership of the office space which would increase their flexibility – meaning they can effectively make alterations to the office space layout to enhance staff productivity. For instance, various studies have shown how flexible working can greatly increase staff motivation levels and boost productivity. So should the council decide to introduce flexible methods such as remote working, it would be much easier to implement new features such as hot-desking space for remote staff, without the obstacles associated with rental agreements.

 

Saving on London Office Rental Rates

 

The other obvious advantage is cost. The council reportedly pays a figure of £7.7m each year on London office rental rates which runs until 2033, with no break clauses in their lease. Therefore under the current agreement, the council would have to pay at least another £161m – assuming the London office rental rates stay at that figure for the next 21 years. Which, they claim, it probably won’t.

 

We currently pay £7.7m each year in rent,” a council report states, which was drawn up to put the purchase case forward. “This figure is likely to increase through rent reviews.

 

It continued: “The decision of the owners of the building to sell it has therefore presented the council with a unique opportunity. The choice we have is analogous to someone renting their home being offered the opportunity to buy it for a mortgage that costs less each month than the rent.

 

Gaining an Important Asset

 

The report went on to claim that if the council purchased the building, it would “reduce its annual costs” and allow the council to gain ownership of an “important asset“. As previously mentioned, the report claims that it also “increases the flexibility we have in how we use it.

 

As part of its case for buying the property, the report concludes that demand for Central London offices remains buoyant despite the challenging economic climate and high London office rental rates, and claims that this level of demand is set to continue.

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