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EU Referendum anticipation causes Central London occupier activity slowdown

Monday, 08 August 2016

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Anticipation of the EU referendum was responsible for a slowdown in occupier activity within the central London office market, during Q2 2016, says leading real estate adviser, Bilfinger GVA.

Take-up for the quarter measured just 1.4 million sq ft, 42% down on the five-year quarterly average and 45% down on the previous quarter.

Patrick O’Keeffe, Head of London Agency and Investment at Bilfinger GVA says: “Whilst we have seen some high profile examples of occupiers renegotiating or even withdrawing from deals in the wake of Brexit, we have also seen examples of businesses carrying on as usual, with Wells Fargo at 33 Central, PA Consulting at Verde, and the Government Property Unit at 20 Cabot Square showing that there are plenty of occupiers for whom Brexit changes very little.”

During the quarter, the availability rate fell from 4.5% to 4.1%, the lowest since Q4 2007. After a long period of low availability and strong demand there are now record rental levels in most submarkets, although the last six months have seen prime rents stable in the West End, whilst continuing to grow in the City.

Despite the fact that availability remains close to record lows and the short-term development pipeline is muted, a fall in demand from occupiers concerned with the effects of Brexit is likely to curtail the long period of rental growth that has been seen over the last six years.

O’Keeffe adds: “During this uncertain time, we may see some demand disappear as occupiers who had been looking to move, due to office refurbishments or redevelopment will now stay put whilst landlords put this on hold. With the market quietening over the summer, it will be interesting to see how long this continues into Q4, and whether some landlords look to change quoting rents, although where cash flow is the influencing factor we believe there is every chance that tenant disposals will lead the way.”

“The central London office market has just experienced the longest period of rental growth on record, due to a prolonged period of high activity, with record take-up levels during the cycle. In a cyclical market such as ours, it should be no surprise that we experience a slowdown.

Whatever the short-term fears about the market, it is likely that many of these will be over exaggerated. We should still take comfort from the fact that the central London office market is as robust as it is. It will continue to benefit from its excellent infrastructure, talent pool and position in the world markets. For both occupiers and investors alike, our market continues to be as desirable as it ever was.”

For further information on our Central London Offices Analysis, please contact Patrick O’Keeffe, Head of London Agency and Investment at Bilfinger GVA on 020 7911 2768 or pok@gva.co.uk

Alternatively, read the full report here: here