Property costs per full time employee are falling, according to occupiers' survey

According to the latest Blue Chip Office Index by Investment Property Databank (IPD) Occupiers seen by Out-Law.com the cost of office accommodation per full-time employee has fallen by 15% since 2005 – amounting to around 3% a year adjusted for inflation.

The report considered 360 properties spanning around 1.8 million square metres of floor space occupied by companies including Ernst and Young, RBS, Network Rail and Scottish Power. The label 'blue chip' is usually used to refer to large, stable companies with a solid track record of producing earnings and only a moderate amount of debt.

Commercial property law expert Suzanne Gill of Pinsent Masons, the law firm behind Out-Law.com, said that businesses had achieved the cost reduction by using less overall space, as well as less space per employee. Business rates and utility costs were also becoming an increasingly important proportion of overall occupancy costs, she said.

"We've been working with businesses over the last few years to sublet surplus space and to exercise break clauses successfully," she said. "Now companies should be taking advice on business rate planning opportunities, especially in light of recent cases, and should be using best procurement practice when buying utilities."

Last week the High Court said that landlords were entitled to use the so-called '42 day rule' loophole as a means of managing liability for business rates. The judgment in effect means that the six-month 'grace period' during which a company will be exempted from paying business rates on property left lying empty can be triggered even where a small amount of the property had been used for business purposes for the previous six weeks.

Earlier this month the Upper Tribunal (Lands Chamber) decided that where a business occupied two or more unconnected floors in the same building, that property should be treated as a single 'hereditament', or unit of occupation, for the purposes of calculating a rateable value.

According to the index, property costs per full-time employee in Central London had fallen by 8% since IPD Occupiers' last survey in 2010. Rents had risen by 15% over the same period; while companies had instead reduced their average space allocation per person. However, space per employee in parts of the UK outside of London and the south east had actually begun to increase after four years of decreases.

Despite a countrywide overall decrease of 10% in rents since 2005, the survey said, business rates had increased by 31% while companies' average operating costs had risen by 23%. Utility charges, such as electricity and communications, amounted to 27% of these operating costs, according to the figures, while repair and maintenance accounted for 24%. In both cases the increase in these charges over the previous year was higher than the rate of inflation, the report said.

Property costs per employee in the professional and financial services sector were above the average figure, at £481 per square metre, according to the report. However, commercial property law expert Suzanne Gill said this was likely due to the fact that companies operating in these sectors tended to have more vacant space, at 3.28% of their total property rather than the 2.57% average.

"In terms of average space per worker, and number of workers per work space, professional and financial services firms are closer to the blue chip average," she said.