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Healthy central London take up despite wavering post Brexit confidence

Monday, 28 November 2016

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Whilst the traditionally quiet summer was exacerbated by Brexit uncertainty, Bilfinger GVA’s latest Central London Office Analysis notes that Q3 has seen some strong activity.

The big news of the quarter was the pre-letting of nearly 500,000 sq ft at Battersea Power Station to Apple, with the rent understood to be just under £60 per sq ft. The letting is a great boost for the market and for London as Apple will not be taking occupation of the building until 2021, indicating their long term commitment to the capital.

Elsewhere, household names such as WeWork, Wells Fargo and The Economist all completed on deals during the quarter, with McKinsey’s, ITV and Lego all rumoured to be under offer.

Central London take-up for Q3 2016 totalled 2.3 million sq ft, 60% up on the previous quarter, but 6.6% down on the five-year quarterly average of 2.5 million sq ft. This was predominantly due to Apple’s deal at Battersea Power Station.

Central London prime rents fell for the first time since Q4 2009, after 26 quarters of consecutive growth. Prime rents decreased by 2.2% during the three months to end-September and are now at the same level they were this time last year. This can be attributed to the West End seeing a fall of 3.4%, whilst City and Docklands markets remained stable.

Patrick O’Keeffe, Senior Director and Head of London Agency and Investment comments: “With continued uncertainty, we expect many occupiers who have a proposed moving date over the next 12 to 24 months to deliberate as to whether it is worth committing to large capital expenditure. With landlords in a similar position and more likely to be thinking of postponing redevelopment or new build, it will be no surprise to see an increase in short-term letting in those situations where it is mutually beneficial.”

During Q3 2016, central London investment totalled just £2 billion across 42 deals, marking a 39% decrease on the previous quarter, where £3.3 billion was transacted, and a 47% decrease on the five-year quarterly average. This was the lowest level of investment since Q1 2010 and was £1.8 billion less than the corresponding quarter in 2015.

Q3 2016 saw yields move out 25 basis points in all submarkets. Prime yields in Mayfair and St James’ are now at 3.5%, with City core at 4.5%. The market seems to have readjusted post-Brexit, although evidence continues to be variable.

ustin James, Senior Director, London Agency and Investment at Bilfinger GVA, says: “Most active investors, be they UK or overseas, expect at least a small discount on pre-referendum pricing. Current exchange rates should in theory make London more attractive than ever for overseas investors. UK investors seem to have renewed appetite following a brief pause in July and August, but only if assets can be purchased at the ‘right’ price. With no one wanting to overpay in this climate, and demand patchy, pricing has already come down a bit from June, although it is not expected to soften further.”

For further information on our Central London Offices Analysis, please contact Patrick O’Keeffe, Senior Director and Head of London Agency and Investment at Bilfinger GVA on 020 7911 2768 or pok@gva.co.uk Read the full report here – http://www.gva.co.uk/research/central-london-office-analysis-q2-2016/