A RACE for office accommodation and a squeeze on the availability of space are helping to keep the central London property market buoyant, despite Brexit concerns.
Across the city, there are 259 developments currently under construction, of which 187 are residential schemes and the remaining 72 are commercial schemes. The development pipeline has meant that more than a quarter of these buildings are not due to be completed until 2020.
Matched against a peak supply of rental property in 2017 and a record take-up by technology media and telecommunications (TMT) companies, this has resulted in a significant “heating up” in the demand for space in the city going into 2018.
The pent-up market will probably persist for at least the next two years, according to a report by global property consultants Knight Frank.
It shows that, despite concerns that businesses would delay or halt office moves within central London in the midst of Brexit uncertainty, significant volumes of leases have been agreed so far this year.
Their analysis will also help reassure those in the property market who are worried that firms with European interests could move staff abroad as a result of the UK referendum vote to leave the EU and possible consequent EU immigration curbs and tariff issues .
Brexit currency advantage
They say there is no evidence from recruitment agencies to suggest a current, or planned, exodus of finance and banking professionals from the City.
This is despite concerns about possible EU immigration curbs, plus potential tariff issues,
Another aspect intensifying demand for business space is the fact that many of the offices currently under construction are already pre-let.
Knight Frank said: “Central London’s office market witnessed a high volume of activity in 2017, with record take-up by TMT firms. While this shows tremendous confidence in London after the EU Referendum, supply also peaked in 2017 and is now in the process of falling.
“This implies that going forward there will be increased demands for pre-lets, as there is a lack of quality supply in the pipeline, and this will put pressure on developers, landlords and operators in the market.”
There has also been a shift in the origin of the money behind developments, with the proportion funded by UK money standing at just 32 per cent on projects approved over the next five years.
This is at least in part due to the currency advantage currently being enjoyed by overseas investors, also caused by the Brexit vote.
Soben Chairman Paul Moultrie said: “This isn’t the only positive take on the London commercial property scene. Other reports, also compiled by respected analysts, have shown similar positive trends.
“In general, take-up volumes have surprised everyone since the Brexit referendum. Many observers initially forecasted a steep fall in occupier demand. While it slowed either side of the Brexit vote, momentum quickly recovered.
“And while the vote has obviously impacted on the exchange rate and inflation – and admittedly other signals are mixed – business sentiment has remained strong. The confidence that large businesses have in their own improving performance and London’s determination to facilitate it combine to produce a very buoyant market situation.”
Stephen Clifton, head of central London offices at Knight Frank, said: “Despite the perceived uncertainty surrounding Brexit, London is still a pre-eminent city, with strong evidence that business confidence is more solid than sentiment expressed in the media may suggest.
“Occupiers are continuing to commit to London to satisfy their requirements, and London also remains the destination of choice for overseas capital as the currency advantage continues to draw investors.”
And Patrick Scanlon, head of central London research at Knight Frank, said that, although the full implications of Brexit have not been felt yet, the number of occupier requirements have not fallen away, as many commentators had predicted.
He added: “With 42 per cent of deals for larger offices being transacted either before or during construction of the building, occupiers are activating searches earlier to maximise the opportunity of securing suitable premises.
“And with downward pressure on supply, businesses will continue to broaden their search criteria.”
