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Serviced offices are gaining ground in Copenhagen, but still account for a relatively moderate share of the market

Although a fairly new phenomenon in Copenhagen as compared with other metropolises, serviced offices are gaining ground, also in major cities outside Copenhagen. One of the reasons why they are becoming more popular is the possibility for users to save costs. According to our calculations, very small businesses (3 or 4 employees) stand to gain the largest savings by opting for serviced offices rather than a standard office lease.

In Copenhagen, the share of serviced offices (or office hotels), relative to the total office stock, has increased from 1.6% in 2017 to 1.7% to 2018. However, the segment has further growth potential as the share is moderate compared with major cities like London and New York, where serviced offices account for 3-5% of the total office stock.


Prospects of continued growth in serviced offices and users
We predict that growth in the number of Copenhagen serviced offices and their market share will continue, gradually approaching the level seen in more mature office hotel markets, again like London and New York.

This prediction is based on our knowledge of both existing and new serviced office operators planning either expansions or new market entries with their brands. At the same time, office users are becoming increasingly aware of serviced offices as an attractive alternative to traditional office leasing.

New players including WeWork, Techspace and Technopolis currently have concrete plans to enter the Copenhagen market, and Spaces (part of Regus) is opening its first facility in the Carlsberg City District in October this year.


The CBD is the preferred location of serviced offices
The location of existing Copenhagen serviced offices clearly reveals a large concentration in the CBD (Copenhagen K), equivalent to approximately 30% of the city’s overall stock in terms of square metres, ahead of Copenhagen S (Amager/Ørestad) and Copenhagen Ø (Østerbro).



A few large operators predominate
Today’s market for serviced offices is dominated by a few large operators, the four largest combined accounting for a market share of 53%. The largest operator by far is Regus, which has a long history and experience with serviced offices. Apart from expanding existing serviced offices, Regus regularly takes over other successful serviced office operators, enabling it to offer a wide range of facilities in various price ranges and locations. The most recent newcomer is Spaces in the Carlsberg City District.


Mounting demand for flexibility and shared facilities
In a world susceptible to changing business cycles, users increasingly demand flexible lease terms, allowing for relatively easy and swift adjustments of the leased premises to suit actual area requirements.

In this context, serviced offices are an attractive option as they, unlike ordinary office leases let per square metre on longer-term leases, typically offer fully furnished office workspaces on short-term leases, facilitating the upscaling or downscaling of workspaces to match user requirements.

In addition to this, serviced offices offer access to facilities such as meeting rooms, canteen, manned reception desk, etc. – facilities that are otherwise beyond the reach of small businesses in minor office leases or associated with high costs.

The demand for serviced offices is further supported by a general uptrend in the number of one-man businesses and small and medium-sized businesses.


In 2008-2016, the number of Copenhagen one-man businesses increased by 3,384, reflecting approximately 22% growth. However, the number of businesses with 2-4 or 5-9 employees, respectively, increased by only 4% and 7% or so, respectively, revealing more moderate growth potential in this category relative to one-man businesses.


Potential cost savings available to small businesses
One-man businesses and minor businesses may achieve fair cost savings by using serviced offices rather than taking out a traditional office lease. The below figure is an attempt to illustrate the savings achievable by opting for serviced offices over a traditional office lease in various office price ranges (lowest, low, medium, high and “prime” (first-rate)), relative to number of employees.

The analysis is based on a calculation of total overheads in various price ranges of traditional office leases versus workplaces in serviced offices. In this connection, we have applied an average workplace area requirement, corresponding to 20 sqm, albeit factoring in a higher average area for the first four employees as, in practice, it is not possible to take out a lease on 20-80 sqm well-functioning office space for one to four employees. Apart from rent, the overhead costs of an ordinary office lease include tenant-paid operating costs and consumption charges (water, heating, electricity, etc.).


The findings of the analysis suggest as follows:

  • Businesses with 1-8 employees achieve cost savings in the lowest, low and prime categories.
  • Businesses with 1-12 employees achieve cost savings in the medium and high categories.
  • Businesses with 3 or 4 employees achieve the greatest cost savings overall.


It is important to bear in mind that the analysis is based on an average account. Accordingly, there may well be deviations from the office lease terms actually offered in the serviced office market relative to the traditional office market. Moreover, the savings potential is reduced if the user opts for some of the additional services offered by office hotels.


Valuation of owner-operated serviced offices
As the serviced office concept is relatively new to the Danish market, the property investor community has yet to build the same level of expertise and know-how for the valuation of this type of property as for ordinary office rental properties, generating traditional net operating income.


The greatest challenges are:

  • The rent per sqm charged for serviced offices greatly exceeds the rent charged in traditional office rental properties.
  • Serviced offices are prone to structural vacancy and have higher tenant turnover rates (churn).
  • Operating income is derived partly from non-property-related earnings, e.g. operation of reception desk and meeting rooms.
  • When fully let, serviced offices generate higher net operating income per sqm in relative terms.


Because of this, it is not possible to calculate the capital value of net operating income (NOI) from serviced offices based on the same yield requirements as applied to the NOI of traditional office lettings in buildings at a comparable location and of comparable building quality.

However, it is not unusual that office properties are fully or partly let to serviced office operators. In this case, the operator pays traditional office rent and operating expenditures (OPEX) to the landlord. Such office properties are valued just like other office properties.

In our opinion, the valuation of property used for serviced offices, owned and run by the same entity, must be subject to the same principles as those applying between two independent parties.

Apart from actual lease terms and conditions as well as the financial standing of the tenant, the concept and quality of operations may of course be important factors in a property valuation.

As a result, the valuation should be based on the assumption that the serviced office operator has entered into a market-conforming, standard office tenancy agreement, with stipulated rent per sqm and tenant-paid operating costs on a par with those commanded by similar office properties in the same area and built to the same specifications.

Most recently, Carlsberg Byen is rumoured to have sold the property where Spaces has taken a new lease, and is scheduled to open this October, at a yield on a par with the market yield requirement of standard office buildings.