All the right moves

Finding suitable studio space for a design group can be a confusing process. Few property agents specialise in such a niche market and many landlords, although keen to sign up a variety of tenants, have little understanding of the design world’s business methods or needs.

In a random sample of five large estate agents based outside London, when asked for information of studio property for a design consultancy, two transferred me to office space, two to industrial sheds and one gave me the number of a residential estate agent.

In London, designers’ needs are more carefully catered for, but consultancies face a constant struggle not to be priced out of the property market.

When taking the decision to look for new studios, a design group has two choices: look for an old building to convert or seek space within a building that has already been converted. The decision will depend on how quickly the consultancy needs space and whether it can justify the money spent in conversion. Developers known for building studios include London Buildings, Charterhouse Estates, Derwent Valley and Baylight.

West London developer Stuart Sapcote, chairman of Sapcote Group, has converted Power Road Studios in Chiswick from a former BBC building. He describes his creations as “ghettos for the creative”. Smaller units cost more per square metre, so that a typical large unit would let at around 215 per m2 and smaller ones could fetch 280 per m2.

He advises me to deal directly with a sympathetic landlord who specialises in studio letting. Sapcote suggests that agents like him are more flexible with rent payments and leases. He suggests dealing with small companies that will be more likely to be accommodating.

However, David Rosen, partner of Pilcher Hershman, a specialist agent based in London’s West End, says it is often more advantageous for designers to find and convert a building themselves. Raw space could be between 54 per m2 and 215 per m2, cheaper than converted studios, but design consultancies may find that they have taken on more space than they can handle and spent more time and money than they anticipated in converting it. If a tenant wanted to buy space, this is usually the preferred option.

Landlords letting raw space are likely to be more flexible. They are often prepared to offer a lengthy rent-free period or occasionally contribute to the costs of furnishing. However, Taylor points out that during the past few years rent-free periods have been harder to get, and when property rises in value developers often acquire and convert space faster than others can find it.

David Jackson, partner of Pilcher Hershman, is keen to point out that a design consultancy should retain a specialised agent who can steer clear of cowboy developers and drive a landlord down to a cheaper price, either with raw space or converted units. He says, “Designers are not business people, they need professional property advice they can trust.” Most agents charge a one-off fee of around 7.5 per cent of a year’s rent once new accommodation has been successfully obtained.

Raymond Segal, partner at City lawyer Goodman Derrick, advises getting a good landlord and tenant solicitor to negotiate the lease. “Do speak to others in your field and not someone who did Uncle Tom’s house purchase in 1970,” he says.

The most convenient leases for studio tenants are the shortest ones. Some landlords offer five-year leases with a tenant-only break at the second or third year. However, most leases for a space greater than 93m2 are for ten years with a break at five.

Segal warns to beware of leases that include a mutual break. This means that the landlord is also able to bring the lease to an end at the break. If the lease does include a mutual break, the tenant’s solicitor should be able to negotiate a lower rent.

Young design groups that cannot offer the usual guarantees to a landlord have to offer other forms of security. This could entail a friend or bank acting as guarantor and signing the lease.

The most usual way in which designers guarantee a lease is to pay a rent deposit; a sum of money based upon three, six, nine or 12 months rent, to be kept by the landlord to cover all the tenant’s covenants.

One of the largest property outgoings for a studio occupier will be the service charge. This will vary depending on the communal services on offer in the building. The charge will be based directly on the amount of space occupied and is the same for all tenants. It will cover services such as security, lifts, reception staff and upkeep of communal halls.

A solicitor should always check the service charge history of the building by doing a local authority search for former enforcement notices. It is also the solicitor’s job to ask the landlord if there will be any large expenditure on the building in the near future. Unscrupulous landlords may quote low charges when the lease is first arranged and then increase it later.

Finally, a hidden cost of any property will be insurance. It is the landlord’s responsibility to insure the building, but tenants should also insure equipment and valuables. David Oatley, managing director of Cadogan Insurance, suggests getting “business combined” cover, which insures against material damage to property, equipment and legal liability. He says that an insurer will insist on good security, which includes good, sturdy locks and possibly an alarm system.

The Design Trap

Creative businesses tend to have a gentrifying effect on the areas they move to, which can cause them problems in the long term.

Sarah Taylor, founder of Winchester-based London “space-finder” Square Feet, points to a change in people’s perceptions since the early 1990s, embodied by the trend towards loft living. “Clerkenwell in the 1980s was incredibly different. It was just full of greasy cafs and old warehouses. People are definitely more aesthetically aware these days,” says Taylor. The same phenomenon has happened in London’s Shoreditch, Hoxton and Bermondsey.

Young design groups always tend to be on the fringes of the city centre in cheaper areas, not yet widely accepted as an area for workspace. Design groups move into the area, closely followed by coffee bars, restaurants and trendy shops. Then companies involved in different businesses are attracted to the area.

The problem is that after creative businesses improve an area, the rents go up and the original tenants are often priced out of the market.

Tony Parrack, partner of West End agent Edward Charles and Partners, sees studios as the next stage up on the property ladder after storage. When land values increase further, pushing up rents, studios too become uneconomical and conventional offices take their place.

Today, the typical London studio designer has been priced out of the traditional haunts of Soho and even Noho, where rents are now 484 and 592 per m2 respectively. The more established studios now occupy the next zone out in Clerkenwell (377), Camden (322-377), Hoxton (322) and Victoria (322-377).

Young consultancies are looking further out of the city with areas such as Waterloo (270-322), Whitechapel (270), Southwark (300), King’s Cross (300) and Bermondsey (270). Some are even looking as far as the new fringes of Shoreditch (160-215), Hackney and Whitechapel (100-130), Bow, Bankside and Southwark.

Price is not the only element to consider. Location is essential because the design community relies on close contact with rivals.

By moving to areas beyond the usual business locations, groups must be prepared to develop their own infrastructure to a certain extent. This may involve creating their own alternative to coffee bars and restaurants to take clients.

Outside London, a similar pattern emerges. Studios in Manchester tend to locate in the Triangle, Castlefield or Canal Street, where rents range between 135 and 150 per m2. However, rising rents are pushing studio tenants to the emerging area of Ancoats, East of Piccadilly, where rents fall to 65 or 75 per m2.

The same is true of Leeds, where rents in the “established” studio area, the Calls, range between 135 and 160 per m2. Creative businesses are being pushed to Holbeck Village, where developers are already creating studios in schemes such as the Martin Mills scheme.

In Glasgow, the traditional areas for such companies is the Park area to the west of the city centre, in converted Victorian town houses. However, with the current state of the market, many of these are being converted back to residential use. Instead, studios tend to relocate to Merchant City to the east of the city.

Liverpool, another up-and-coming area for studios, is trying to develop a cultural quarter at the Rope Walks. The area has recently received 40m of European funding to attract creative businesses. Companies receive grants based on the number of jobs they create.

Lucy Barnard is a property writer at Estates Gazette