Saturday, 28 January 2012

Government becomes an office landlord

The government has just announced a scheme where empty office space in public sector properties will be leased to small businesses.   The aim is to encourage entrepreneurship, and strengthen the small business sector whilst helping to generate income from public properties that will otherwise sit idle.  These are laudable aims, but I have strong reservations about the scheme in practice.

Firstly, the government is setting itself up in competition to private sector commercial landlords.  I don’t know about in London, but in much of the country there is no shortage of commercial space available at low rents and flexible about the size and duration of the lease.  It may be a big problem in London, but it is not in Leeds where the scheme was launched, or Bradford where I am based.  In fact there is a problem of too much space chasing too few tenants.  The government offering their surplus space, whilst a reasonable commercial proposition, is likely to end up undercutting the commercial offer (by offering better facilities, infrastructure. decor etc. for the same price) which in the end may lead to a lessening of total space available and in the short term may drive some commercial spaces out of business.

Enough sympathy for the landlords (sorry Ben and Helen, who provide my office space).  The bigger worry to me is that the government is sending a message that start-up businesses need formal office space.  Some do – but they can probably look after themselves.  Obviously manufacturing tends to need dedicated premises, which is one reason it is so hard to start successfully.  Service industries, including retail these days, often do not need their own office until they are large enough to pay for them at commercial rates.  New businesses are often better setting up from the kitchen table or garage until the cash flow is strong enough.  I was based at home for nearly 10 years.  People starting off in business are sometimes seduced by the glamour of setting up, when what they need is to strip out anything that does not generate cash.  A website is a much better investment than an atrium.

Feel free to disagree.

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