Anxiety and uncertainty are set to remain central themes throughout London’s office market during 2017, a new analysis suggests.
This market is slow but steady but facing unknown challenges as the UK works through the complex Brexit negotiations that lie ahead, according to latest quarterly office market bulletin from real estate consultancy Cluttons.
While total take up in the central London office market during 2016 was down by close to a fifth on 2015, the fourth quarter of 2016 represented somewhat of a U-turn in conditions, with occupiers shrugging off the uncertainty and moving forward with plans that were previously stalled.
‘It would appear that the economy’s resilience in the face of an unclear future has helped to bolster activity in the capital’s commercial office market,’ said Faisal Durrani, head of research at Cluttons.
‘Of course, this in addition to pent up activity from the inevitable Brexit referendum quarter which saw occupiers moving into a holding pattern,’ he added.
Cluttons’ report shows that total take up volumes in the final quarter of 2016 across central London rose to nearly 3,520,000 square feet, up 72% compared to the third quarter, the strongest surge in over two years.
However, total take up in 2016 was down a fifth on the previous year primarily due to a hiatus in deals during the Brexit quarter.
However, in the investment market, sterling’s prolonged weakness has attracted significant international capital, with Chinese investors being especially active. Beijing Capital Development, for example, recently purchased the 92,000 square feet premises of Fleet Place House for £108 million, reflecting a yield of 4.35%.
Still, Cluttons claims there is less appetite for risk at present, so assets with vacancy and short term income are less favoured.
‘The London office market is slow but steady, with positive and negative indicators finely balanced. While quoting rents have eased in pockets across both core and fringe locations most of this is removal of froth that follows an extended bull run,’ said Ralph Pearson, head of commercial agency at Cluttons.
But he added that the jury is out whether on whether dealing rents will ease during the remainder of the year but larger rent frees and greater lease flexibility are around for the foreseeable future.
Durrani pointed out that it is good that the British Prime Minister has set out a clear 12 point Brexit plan and trade deals with the United States, Canada, India, Australia and the Gulf States are on the agenda.
