Businesses are spending more on real estate than was previously assumed, a new report from the British Council for Offices (BCO) has revealed. How much are companies really spending on property, and what impact will the new findings have on commercial tenants and landlords? The previously accepted wisdom
It is widely held that for most businesses, salaries account for 80% of their total outgoings, office space 10% and other expenses a final 10%. According to Bill Page, the BCO’s Research Committee Chairman and Business Space Research Manager, this “rule of thumb” has been relied on by the property industry “for many years”.
Mr Page added, however, that this assumption has become outdated: “Ultimately, our analysis found that while salaries continue to dominate overall costs, property and non-property business costs play a greater role than accepted industry wisdom.”
How much more commercial property costs
The BCO discovered that property is more likely to account for 15% of a business’s expenditure. It arrived at the figure after analysing business data collected by the Office for National Statistics.
The study specifically looked at four industries: real estate; professional, scientific and technical; administrative and support; and IT and communications. With the sectors having combined outgoings of approximately £429 billion, the BCO’s key finding is being regarded as more accurate than the previously accepted figures.
The impacts the BCO's findings may have
Mr Page has said the updated proportions will enable businesses to be “more informed” when it comes to taking property decisions, and investors will “better appreciate the implications rental growth has to affordability.”
It’s also possible that the BCO’s findings could affect the medium to long-term rental forecast, while policymakers may take them into account ahead of possible changes to business rates.
Meanwhile, landlords may find businesses that hold on to the previous 10% rule become more likely to default on their rent – increasing the amount of outstanding payments. Landlords can protect their businesses from this eventuality by ensuring they have effective and ethical procedures in place for commercial rent arrears recovery.