Central London office market defies Brexit and outperforms 2016
London continues to defy Brexit and remains a resilient office property market with leasing activity in central reaching 13.84 million square feet last year, the latest analysis shows.
This vastly outperformed 2016 by over two million square feet and combined with continuing extraordinary demand from the TMT and biotech sectors it means there is a risk of a supply shortage as companies increasingly look at pre-lets, says the report from global property adviser Knight Frank.
It confirms that the Central London office market has been particularly resilient in the face of Brexit and that the current pace of job creation is likely to outweigh any lost to overseas markets post-Brexit.
In 2017 London’s office market experienced particularly high levels of demand, with 4.1 million square feet acquired in 2017, some 31% higher than the average. This has been driven by the TMT sector which is increasingly seeking higher volumes of office space, particularly in the sub 5,000 square feet category, on top of the new trend towards flexible office space which appeals to both start-ups and established corporate occupiers.
The report explains that there is a lack of quality office space supply as, despite there being over 259 development schemes under construction in central London, some 187 are residential, and of the remaining 72 offering commercial space, only two thirds are available to lease, with many of them already pre-let to office tenants.
Furthermore, the development pipeline has meant that more than a quarter of these buildings will not be available until 2020, creating a short term squeeze for any companies needing to move in the next two years.
Stephen Clifton, head of central London at Knight Frank, said:
‘Central London’s office market witnessed a high volume of activity in 2017 with record take-up by TMT firms. Whilst this shows tremendous confidence in London after the European Union referendum, supply also peaked in 2017 and is now in the process of falling.
‘This implies that going forward there will be increased demands for pre-lets as there is a lack of quality supply in the pipeline, and this will put pressure on developers, landlords and operators in the market.
‘It is clear that occupiers are increasingly considering their real estate strategy a core part of their business decision making process, whether that be the design, co-working space or amenities. As such, landlords must adapt to accommodate occupier requirements and ensure that the central London office market continues to flourish.’
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