Political uncertainty over the Brexit referendum has done little to diminish demand for London office property, despite it causing the commercial property market to experience a nervous start to the year. According to the latest research from Colliers, the number of vacant offices still remains low, with occupiers appearing to be relatively un-phased by external political and economic upheaval. There has been some high profile lettings and a healthy number of new large scale enquiries in the first quarter of this year – but transactions and searches have become protracted and supply shortages are undermining occupier expansion plans. However demand for office space amongst media and tech firms is diminishing in some locations. While Q1 2016 figures show that media and tech accounted for 38 percent of demand for office space across London, in the traditional media enclave of the West End, the figure fell to just 13 percent of demand, down from 45 percent in 2015.
Traditional media locations such as Bloomsbury, Soho and Covent Garden are seeing reductions in media and tech occupation. In total, occupation by those sectors in traditional media locations has fallen by 390,000 sq ft since 2011.
The City core and particularly Fringe markets, are now taking the lion’s share of media and tech take-up, and while average rents paid by media and tech in the wider City are on a par with the West End, overall average City rents are lower, which translates into greater choice of appropriate office space.
However, ‘Fintech’ continues to bolster demand with deals at iconic City schemes such as Tower 42, Broadgate Tower and 100 Cheapside as well as the top quality new product in the Tech City heartland such as Derwent’s White Collar Factory, now more than 50 percent let.
Prime office space in the West End Core markets of Mayfair and St James’s, is experiencing inhibited activity with headline rents plateauing in the wake of the current economic climate. Demand for £120 psf plus space is at a 12 month low. However, rental reductions at high profile schemes appear to have generated renewed interest. Core West End supply is set to be modest in 2016, reinforced by the Crown Estate’s decision to take 31,000 sq ft at its own St James’s Market scheme.
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