London's tech switch sees office demand lift despite EU vote bump

Despite uncertainty caused by the EU Referendum, demand for office space in central London was well above the long-term average in the third quarter, reports Knight Frank.

In its Q3 figures, KF said that between June and September active office searches in Central London exceeded 9.5m sq ft, significantly ahead of the long term quarterly average of 7.9m sq ft.

Demand across Central London is being driven by the tech sector, with Spotify, Expedia and Deliveroo all actively seeking office space.

Take-up in Central London in the third quarter totalled 2.7m sq ft, a 15% increase on the previous three month period. This figure was buoyed by Apple’s prelet at Battersea Power Station, acquiring a new 500,000 sq ft London headquarters, with Knight Frank advising the landlord. Apple’s deal is the biggest pre-let to kick-start the development of an entire new district in Central London since the 1980s. It is second only to Credit Suisse’s pre-let at 1 Cabot Square, which initiated the development of Canary Wharf.

Other notable transactions in the third quarter included US bank Wells Fargo acquiring 225,000 sq ft at 33 King William Street (a deal in which Knight Frank acted for the vendor), and WeWork letting 65,000 sq ft at Aldwych House.

James Roberts, chief economist at Knight Frank, said: “Over the past five years London has been reweighting its economy away from finance and towards technology and innovation, which will pay dividends as we move towards Brexit. Given the big tech names currently looking for office space in London, and the huge deal last month from Apple, it is apparent that Brexit has had little more than a road bump effect on the capital’s burgeoning technology sector.”

Office availability remains at a low level across Central London with a total of 15.2m sq ft available to let in the third quarter, versus a long term quarterly average of 16.1n sq ft. The supply demand dynamics across the Capital mean City prime rents remain stable at £70 per sq ft in the City market. However, in the Mayfair and St James’s district, with its large hedge fund and private equity community, prime rents edged down to £110. q ft.

Investment in Central London in the third quarter totalled £2.29bn, a third down on the same period in 2015.

Stephen Clifton, Head of Central London at Knight Frank, said: “In the investment market we have seen more interest from Ultra High Net Worth individuals than ever, particularly from Asia. This is partly due to currency but partly because they remain strong believers in London as a global capital city.

“Transaction volumes have declined but this is partly due to lack of available stock as owners are reluctant to sell while the Brexit uncertainty persists.”

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