Demand for office space in central London is recovering following a pause immediately after the decision to leave the European Union, new research shows.
Total occupational office space under offer in September reached 2.4 million square feet, almost identical to the figure for the referendum month of June and 41% up from July’s low of 1.7 million square feet.
The analysis report covering the third quarter of 2016 from Cushman & Wakefield also shows that September saw a resurgence in new occupiers committing to space which boosted the total.
Take up volumes for the third quarter was up from 1.6 million square feet in the second quarter of the year and contributed to a total of 6.7 million square feet for the first three quarters of 2016.
The firm says that the projected take up total for 2016 is now 8.5 million square feet, up on 2011 and 2012, however down on 2013, 2014 and 2015.
‘The leasing market slowed down sharply immediately post-Brexit but, as the latest data reveals, confidence is returning albeit at a rather muted level,’ said Andy Tyler, head of West End Office at Cushman & Wakefield.
‘We are seeing new enquiries coming in and occupiers are not afraid to commit. Two very large deals concluded by Cushman & Wakefield during the quarter in the emerging West End rather than central London provide the evidence for this,’ he explained.
He also pointed out that year-end figures are likely to exceed 2011 and 2012 when London was still suffering the effects of the Global Financial Crisis but confidence was returning.
‘It is also worth noting the recent Business Rates increases could temper the competitive advantage which some locations have hitherto enjoyed and might play more to the West End and western fringe in future,’ said Tyler.
‘Crucially, of course, what London seeks is clarity around what Brexit will look like and its impact. Only then will it be possible to fully assess the implications for the London office market. In this respect, 2017 could be a pivotal year,’ he added.
According to Alistair Brown, head of City Office at Cushman & Wakefield, the level of under offer space at the end of September has shown London’s occupiers are ready to move forward as they realise Brexit will not be a quick process and life in London goes on.
‘Specifically, the City saw a 16% increase in office space going under offer during September, building on the momentum created over the summer by occupiers such as Wells Fargo who committed to 230,000 square feet at 33 Central,’ he added.
Meanwhile, a separate report from the property Industry Alliance shows that the value of the UK’s commercial property stock reached an all-time high of £871 billion in 2015, representing 10% of the UK’s net wealth.
This is an 11% increase on the 2014 value and has been driven by higher rents as well as the prices investors were willing to pay for a given rent. ‘To put this in context, at £871 billion, commercial property’s value is the equivalent of 40% of the value of the UK stock market and almost half the value of UK government gilts,’ said PIA chair Bill Hughes.
The report also shows that commercial property represents 13% of the built environment with a total value of around £6.5 trillion and the property industry contributed around £68 billion to the UK economy last year, some 4.1% of the total UK economy.
Direct and indirect exposures to commercial property account for £178 billion of UK insurance company and pension fund investments that support the nation’s savings and the commercial property industry directly employs almost one million people, or one in every 35 jobs in the UK.
‘This report demonstrates the property sector’s fundamental importance to the UK’s economy in providing an attractive asset class for investors of all sizes and for the funds serving the nation’s savers and pensioners,’ Hughes explained.
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