Central London office lettings in June 2016 and Q2

Central London office lettings in June 2016 recorded just over 640,000 ft of deals from 35 mid-large size transactions during the month. The June figure represents an increase the 550,000 sq ft in May and brings the central London total for Q2 2016 to 2m sq ft, which is one of the lowest quarterly totals for years. The Q2 total was held back by no lettings over 100,000 sq ft and only three deals over 50,000 sq ft.

June was characterised by 10 office deals over 20,000 sq ft, including Schon Klinik at 66 Wigmore Street, W1; Office Group at York House, N1 and Gorkana at 5 Churchill Place, E14.

Business services topped the table of lettings by sector, helped by several serviced office deals. This was followed by IT boosted by Gorkana’s letting. Media and financial services are also performing well. Office deals under offer remain around 3m sq ft and include two large pending deals in the City. Across Q2 2016 the most active sector was IT, followed by business services and professional. Financial services had a muted quarter.

By area, the City accounted for 48pc of the office floorspace let in June. The West End had a quiet month with only a handful of 5,000 sq ft plus deals in central areas. Midtown continued its steady progress with 100,000 sq ft let and a similar volume of space was let in Docklands. Current London office demand is calculated to be around 4.7m sq ft in the City and 3.5m sq ft in the West End.

The volume of grade A (newly built or refurbished office space) let during the month reached 170,000 sq ft (27% of the total), as transactions for newly developed or refurbished space were on hold in advance of the EU referendum.

Metropolis is tracking over 600 London requirements, where a relocation decision is expected in the next 12 months. The Q2 slowdown is predicted to inflate deal volumes in Q3.


Reasons to be Post-Brexit Cheerful 1, 2, 12…

Despite a lacklustre Q2 London office market in the run up to EU referendum vote, the July deals have come thick and fast this week as the market shakes off the blues. Deals concluded this week have included these 12:

Wells Fargo, the US bank, has bought the under construction 227,000 sq ft 33 Central office development in London, EC4 for its own occupation as its new London HQ.

The Government Property Unit has signed for 400,000 sq ft of deals at 20 Cabot Square, London, E14 for a host of public sector bodies including 150,000 sq ft for regulator OFGEM.

Derwent London has pre-let 84,600 sq ft in four deals at its 185,000 sq ft refurbishment of The White Chapel Building E1. Incoming tenants include Reddie & Grose, Perkins & Will, The Shipowners’ Club and Unruly Media.

Exterion Media, the advertising agency, is taking the 2,323 sq m (25,000 sq ft) seventh floor of the newly-completed 84 Theobalds Road office scheme, London, WC1

David Game Tutorial College take the 60,000 sq ft 31 Jewry Street, London, EC3.

University College London take 23,000 sq ft at 1 St Martin’s Le Grand, EC1.

Kames Capital and MS Amlin take expansion space at the Leadenhall Building.

Public Lab, a DIY environmental science community, is due to sign for 15,000 sq ft at Aldgate Tower, London, E1.

Further details of these and many more upcoming relocations are available to Metropolis subscribers at http://www.metroinfo.co.uk

More Brexit forecasts

CBRE recently published its forecasts on the potential impacts of Brexit following  the EU Referendum. The main points include:

“Brexit” is being predicted to have a negative impact on occupier sectors such as financial services, business services and the tech industries. Market activity in financial services is predicted to be adversely affected by regulation and the possibility that UK-based banks denied opportunities to operate directly in the EU.  UK-based banks have discussed contingency plans to relocate some of their staff out of London. HSBC may move 1,000 investment bankers to Paris. Bank of America Merrill Lynch, Goldman Sachs, and others have also talked about relocations.

Business services (legal, accounting, management consulting) tend to derive revenue from financial services for a substantial part of their business and are often located together in UK cities. Brexit impact on financial services is likely to impact professional services too. Tech industries express concern over limitations on skilled migrant labour. Vodafone has mooted moving its HQ abroad. London‘s tech sector occupiers may be tempted to move to competing European centres. CBRE say that further impact could be felt by the food and hospitality sectors, as they too are exposed to labour market restrictions.

Office market analysts are forecasting The an adverse ‘demand shock’ following the referendum result. Metropolis saw central London take-up halve in the three months leading up to the vote to leave the EU. It is currently too early to assess the impact since the 23rd June, but there is some anecdotal evidence of occupiers putting searches on hold.

CBRE predict that London office demand will fall and rents will be lower than they otherwise would have been. The leave vote will usher in a period of uncertainty in both occupier and investment markets that would last at least two years and possibly more. The optimistic scenario suggests that if the UK successfully negotiates a reasonable trade deal with the rest of the EU central London office rents might actually rise back to previous levels.

CBRE say that impacts on the office market could include jobs being relocated as a direct result of the Leave vote; and jobs which might have been created in the UK but which are created somewhere else because the UK is no longer in the EU. Although economic activity might be depressed more in the short term, the full effect on the occupier market is likely to build over time as leases expire and are not renewed.

CBRE forecast that planned office development will slow, unless a significant pre-let commitment for the scheme has been signed. In Central London over 6m sq ft of office development is underway to complete in 2016, followed by a similar amount in 2017 – but many schemes pencilled in for 2018 and 2019 (which total over 13m sq ft) are likely to be put on hold. Very little of the floorspace due to complete in 2018 and 2019 has actually started on site. It looks likely that many of these schemes will stall until the economic direction becomes clearer.

In conclusion, the impact on the office market is likely to be negative in the short term, but in the medium term the picture is more mixed and it is to be hoped that with a careful economic management, that a soft landing can be achieved.