Impressive Office Take-Up Levels In Central London Confound Brexit Expectations

January 24, 2019

Central London office take-up in 2018 has been 14% higher than the long term average and at its highest level since 2014, reaching 14.61 million sqft over the whole year. According to Knight Frank, the overall Central London office take-up in 2018 was more than 5% higher than the previous year which stood at 13.84 million sqft, with the fourth quarter take-up totalling 3.82 million sqft and slightly surpassing the previous quarter of 3.74 million sqft. This is a direct result of an increase in the number of deals over 50,000 sqft, which stood at 48, of which 15 deals were struck in the fourth quarter.

TMT Account For 27% Of The Industry

The sector acquiring the largest amount of space was the Technology, Media and Telecommunications (TMT), which accounted for 27% of all take-up, followed by the finance industry with 19%. Whilst there was an observed reluctance among developers to build speculatively or without a tenant already in place, the current office take-up levels for the year is on track for a five-year record, with deals agreed on 10.8m sqft of new space in the first nine months of the year, by players such as Facebook, Deutsche Bank and the Chinese government.

The aforementioned shrinking development pipeline has impacted the activities of WeWork, the global flexible office space provider; the amount of new space they acquired in London almost halved this year. Other competitors ramped up their own property acquisitions, increasing their uptake from 858,000 sqft of new leases in 2017 to 1.2m in 2018. The head of London offices at JLL, Neil Prime, claims that the sector is facing increased demand from larger companies as they move to a strategy of combining buildings on long leases with shorter-term flexible commitments. Currently, there are already over 60 unique operators across central London, but more names are expected to enter the market.

The first round auction of the BT headquarters in the City of London received more than 10 bids from investors of varying nationalities, with some offers being well above the £200m asking price. This, along with the fact that property investors from South Korea, Hong Kong, Singapore and Spain have bought already occupied London offices this year for prices of £500m or more, suggests that investors maintain a long-term outlook and are looking beyond Brexit.

Office Uptake Highest In 5 Years

Whilst some market players predicted falls of 20% in London office values and Mark Carney suggested a fall of as much as 48%, the observed figures have confounded the negative expectations associated with Brexit. With approximately £12 billion of central London office real estate changing hands in the first three quarters of 2018, according to the property agents CBRE, this figure has been the highest observed over the past five years. On the other hand, this impressive performance contrasts with other types of commercial property, notably retail, where values are falling and the market for shopping centres is at its slowest in more than two decades.

Overall, there is a positive outlook for office real estate in 2019 and developers would do well to reconsider their current strategies, given the high levels of demand, as well as the fact that Brexit uncertainty has not significantly impacted the country’s most endangered sector.

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