Location can be an important factor in ensuring business competitiveness as it has a direct influence on variables, such as visibility, accessibility, attractiveness as well as, potentially, cost management.
However, is this always the case? Does location merit the price differential between locations considered as ‘core’ and others identified as ‘peripheral’? Does it make sense to talk about cores and periphery in a small country like Malta?
Market prices for the leasing of office space in Malta range from an average lower end price of less than €100 per square metre per annum in central areas such as Birkirkara and Naxxar up to average prices of well over €500 per square metre per annum in core areas such as Sliema and St Julian’s.
Of course, such price differentials are determined in primis by demand and supply. A cursory look at the supply of offices over the last few months shows that the supply of products in the three so-called core areas of Sliema, St Julian’s and Valletta constituted around one-third of all offices in the leasing market in Malta.
The large supply of office space in such ‘core’ areas together with the high rental prices such office space commands indicates – and experience confirms – the equally huge demand for properties in these premium areas.
Market forces determine equilibrium prices
Decisions related to the location of a business of course hinge, among other things, on the nature of the activity, its potential customers, pool of employees, suppliers and, of course, the vision the firm’s management has for the business. Other variables such as budget, size of the firm and market availability, and decisions by other market players also have an important role. By way of example, a decision to locate an office close to the airport would make business sense for a firm having a large international clientele with frequent day-trip visitors. However, it would be an equally rational decision for such a business to opt for a base in a 17th-century Valletta palazzo with majestic views of the Grand Harbour from the boardroom! After all, Valletta is (depending on the traffic) barely 15 minutes away from the Malta International Airport, and such a location would surely impress visitors.
This fictitious example brings to the fore the seeming contradiction in raising issues of core and periphery in Malta. Time and distance are only relative with any locality being less than an hour away from anywhere else in Malta (bar Gozo, and rush hours). This is even more so thanks to broadband coverage and the widespread use of facilities such as videoconferencing, social networks and other messaging technologies (themselves key variables for encouraging investments in a geographically peripheral state like Malta).
Which begs the question about whether office location merits the price differential between locations considered as core and periphery. Office space in Luqa and Gudja has a market rental value starting from around €100 per square metre, at least 50 per cent lower than the starting price for office space in Valletta and substantially lower than the premium commanded by an office with imposing views of the Grand Harbour.
All other things being equal, from a budgetary perspective, a rational entrepreneur would go for the cheaper option and the distinction between core and periphery would fade into irrelevance.
Unfortunately, however, the ceteris paribus rarely mirrors real-life circumstances. Decisions on location tend to value variables beyond the budgetary line, such as ease of access including transport and parking infrastructure, nearby amenities, clusters, proximity to potential clients, permitting regulations, market availability and so on and so forth.
Therefore, whether it makes sense to talk about core and periphery and whether that justifies a premium can be either yes or no depending on the nature of the business and the management priorities.
Market forces determine equilibrium prices and effectively establish core areas for which there is huge demand and peripheries out of the remaining ones. It is essential that the management identifies its priorities and requirements very carefully and makes sure that these are communicated (and understood) by the estate agents entrusted with identifying the most appropriate site to locate their business.
www.officeinmalta.com
Emmanuel DeGiovanni is a commercial and residential letting specialist with Simon Mamo Real Estate.