More frequent movers after Brexit ?

Comment this week from the CEO of Citibase suggests that the market uncertainty triggered by Brexit will lead to even shorter leases, than the current 6-7 year average. Citibase say that the trend towards flexible working is growing, with businesses needing the ability to cope with unpredictable events such as Brexit.

If large numbers of foreign businesses move out of the UK it could lead to an increase in the supply of secondary office space. This would mean many landlords would look to make space income generating even if it meant accepting short leases.

Metropolis’ direct weekly research with hundreds of office tenants suggests increasing numbers looking for and being offered, short term leases of three years or less. In recent weeks Metropolis has reported on short term office lease agreements by companies such as insurer Manulife; retailer Monica Vinader; software group SanDisk; law firm Carbon Law and media group Ominicom. May more future requirements involve searches for flexible space on leases not exceeding five years.

Small businesses continue look to shed inflexible long-term leases in favour of flexible offices.

Citibase point out that long-term leases were dying out well before Brexit, but believe that the process will be hastened by the uncertainty of current market conditions.

If the average lease length falls even further, this implies that office moves will become even more frequent and could become a fact of life every five years for many firms.


Brexit Vote – where next?

Its not difficult to find the negatives in the wake of the EU referendum vote.

For example: financial firms occupying large offices in the UK are key drivers of the UK office market. Analysts calculate that around 10 million sq ft of floorspace occupied by the finance sector in Central London is approaching either a lease break or a lease expiry before 2021 – over 20% of the financial services occupiers in London. A significant proportion of those occupiers could make partial or wholesale moves out of the UK – particularly those with significant Eurozone business.

However, there are some positives that should be borne in mind: “the UK is competitive, innovative and highly-skilled economy and an attractive place for business”. (David Sproul, at Deloitte).

“For property markets, the initial correction may be most severe but should be followed by an upturn as opportunities re-emerge in UK core markets and benefits of weak sterling are recognised.” (Chris Ireland, JLL)

“We should not lose sight of the fact that the UK is an incredibly resilient and adaptable economy and it is difficult to see how the City of London will not continue to remain as one of the leading financial centres of the world. The UK is also a major focal point for the technology industry and companies exposed to this sector are much less likely to be affected by the implications of Brexit.” (Rob Thompson Irwin Mitchell).

Office rents could fall, which would enable some tenants to move to better offices, which wouldn’t have been possible at higher levels. (Metropolis).

The highly active technology and media sectors are less affected by the EU referendum result than financial services (Metropolis)

In general, it is to be hoped that after an initial period of uncertainty, that occupiers begin to gain confidence that business will resume and normal relocation and refurbishment decisions can be resurrected. The starting position is one in which Metropolis is tracking over 800 occupiers which have ‘identified requirements’ for office space in 2016 and 2017, so even a softening of demand in the short term, will still leave a lot of business to be won over the next 12 months.

Central London office lettings in May 2016

Central London office lettings in May 2016 recorded just under 550,000 ft of deals from 38 transactions during the month. The May figure represents a fall back from the 650,000 sq ft in April and 1.4m sq ft recorded in March as Brexit fears subdued the market further.

May was characterised by 10 office deals over 20,000 sq ft, including Mishcon de Reya at Weston House, High Holborn, WC1; Tata Consultancy at Northcliffe House, Kensington High Street London, W8 and Dentsu Aegis at 10 Triton Street, London, NW1.

IT services topped the table of lettings by sector, helped by the Tata Consultancy deal. This was followed by professional boosted by Mishcon de Reya’s letting. Media and business services are also performing well. Office deals under offer have risen to over 3.2m sq ft and include two large pending deals in the City. Over 40 separate deals are under offer, but seem dependent on the Brexit vote.

By area, the City accounted for only 21pc of the floorspace let in May. The West End had a better month particularly Victoria which saw 5 deals and the West End fringe which saw a further 5 deals. The pace further picked up in Midtown with over 200,000 sq ft let in 10 deals. Current London office demand is calculated to be around 4.6m sq ft in the City and 3.8m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month reached only 70,000 sq ft (13% of the total), as transactions for newly developed or refurbished space suffered from the slowdown.

Current forecasts suggest that in the event of a Brexit vote, London office lettings will be curtailed for some substantial period, due to market uncertainty.

Metropolis and Cityoffices are tracking a potential 20m sq ft of central London office space completions between 2016 and 2018 in 100 schemes of over 20,000 sq ft.

Cityoffices and Metropolis Skyline Survey Summer 2016

Metropolis and Cityoffices have completed their bi-annual ‘Skyline’ survey of the central London office development market for the period October 2015 to April 2016. The survey takes a snapshot of central London office construction in Q2 2016 and includes recent completions, recent pre-let activity and looks ahead to future pipeline projects that will shape the next three years.

After an unprecedented 48 office scheme starts in the six months from October 2015, there are now 104 office schemes under construction in central London (compared to 78 six months ago) totaling an increased 13.5m sq ft (11.1m sq ft in September 2015). This 22% increase in London office space under construction was forecast in our autumn 2015 report.

Scheme start surge

The 48 new office scheme starts in Q4 2015 and Q1 2016 saw 4.7m sq ft of new office space go under construction, including major new-builds such as the 800,000 sq ft Banking Factory in Shoe Lane, EC4; the 320,000 sq ft ‘Can of Ham’ at 60-70 St Mary Axe in the City of London and the 275,000 sq ft Fruit & Wool Exchange in E1, which is all pre-let to a major law firm.

The proportion of refurbishments in the office construction market in central London has stabilised. There is currently a 17:83 split by floorspace ratio of refurbishments: new-build. High profile refurbishments started since autumn 2015 include: Helical Bar’s 165,000 sq ft The Tower, EC1 and GPE’s 150,000 sq ft 148 Old Street in EC1. A significant number of refurbishments are continuing to enter the market, but in terms of total sq ft are overshadowed by large new-builds.

The City dominates current office construction with 9m sq ft of new office space in schemes now underway (up from 6m sq ft in autumn 2015). There is now 670,000 sq ft of office space under construction in Kings Cross, with more at site clearance stage. The West End, including Paddington, has 2.3m sq ft under construction and a further 1.5m sq ft of office builds are on-site in Midtown and Southbank.

More demolitions poised

Despite the high number of starts in the last six months there remains a lot of schemes at demolition stage. Currently there is 6m sq ft lined up to start in late 2016 and 2017. In reality, with over 100 further schemes currently at planning consent stage, more schemes will add to these numbers, particularly in 2017 and 2018. Therefore we predict annual London office development completions in 2017 and 2018 could reach 7-8m sq ft.

Looking ahead, some 33 future office schemes are currently at site preparation stage with upto 7.2m sq ft of additional office space due to go under construction in the next 6 months. Many of these schemes will not be completed until 2017, 2018 or 2019, for example schemes such as 8-10 Grafton Street, W1 or Marble Arch Place, however it is clear there is a continuing strong development pipeline.

There are 200 office schemes that are in the current planning pipeline which could start construction by 2018 (listed on our Cityoffices website), assuming no major economic downturn. In total, over 35m sq ft of offices could be constructed by 2020.

Two of the largest schemes which are closest to a construction start and likely to see construction late in 2016 are the Commonwealth Building in New Oxford Street, WC1 and the 400,000 sq ft No.1 Thames scheme in WC2. Current trends suggest a London office ‘completions bulge’ in 2017, including nearly 5m sq ft in the City alone. There are a further 200 office planning consents pending, including schemes such as 8-10 Grafton Street, W1; 55 Gresham Street, W1 and 8-10 New Bridge Street, EC4.

Ready for tenants and fit-out?

In terms of demand for new space in central London, some 5m sq ft (4.4m sq ft in September) of the 13.5m sq ft under construction, has already been pre-let. Recent pre-lettings of under construction space include: DLA Piper at 160 Aldersgate Street, EC1; Colt Telecom at 20 Great Eastern Street in EC2; Farm Group at 58-62 Newman Street in W1; Fred Perry at 29 Mount Pleasant in EC1; New Look and XTC Markets at Building R7 in Kings Cross.

Just over 1.7m sq ft of offices were completed in central London over the last six months, however the increased pace of letting activity has led to over half of the space being let either prior to completion or just after. The largest schemes completed included: the 215,000 sq ft Lacon House, WC1 part pre-let to Arriva; the 188,000 sq ft Zig Zag Building, SW1 where space was pre-let to Jupiter Asset Management and TT Moneycorp and the 170,000 sq ft 8 Finsbury Circus, EC2, part let to Rathbone Brothers and Charles River. Some 40% of office space already pre-let will be occupied by financial services and tech sector companies (see last week’s blog on the rise of this sector). Metropolis is currently tracking nearly 10m of named office requirements in central London.

In total, less than 880,000 sq ft of offices are still available in the 22 London schemes and 1.7m sq ft of offices recently completed in Q4 2015 and Q1 2016. Some 20 different tenants have already signed up for space in the newly-completed developments such as St James Market, 77 Shaftesbury Ave and 1 New Burlington Place. There are currently 3.7m sq ft of offices due for completion in Q2 2016 and Q3 2016, of which 1m sq ft has so far been pre-let. Based on recent trends we would expect a further 1m sq ft or more to be let in these schemes by September 2016.


In conclusion, total office development underway in central London should break through the 15m sq ft ceiling in summer 2016, which would set a recent post recession construction record. The projected 12m sq ft of London office take-up for 2016 looks likely to include over 4m sq ft of grade A new lettings within newly constructed and or refurbished buildings. The number of larger companies now looking further ahead, considering pre-let of space not due for completion until late 2016 or 2017, will sustain a similar take-up pattern in 2016.

In effect, the forthcoming pipeline of schemes for 2017-2019, including the next wave of schemes currently at demolition stage, means that opportunities for pre-letting new space under construction and due for completion in the next three years, has never been greater than at present.