Brexit vote casts shadow over market, but some positivity provided by high-profile deals in early Q3
Central London office take-up fell 21% during Q2 as the EU referendum cast a shadow over the market, but several high-profile deals at the start of the third quarter provided some sunshine amid the uncertainty, according to the latest London Floor Review research from Gerald Eve.
Take-up across the West and the East totalled 2 million sq ft for the quarter – a fall of 21% from the previous quarter and 23% lower than the equivalent period in 2015 – with space under offer hitting 1.97 million sq ft as occupiers ‘paused’ prior to the referendum result being announced.
The quarter also saw a surge in supply to 7.6 million sq ft – 31% higher than during Q1 and a 41% increase from a year ago – due to development completions in the City. Availability in the West remained broadly static, both on a quarterly and annual basis.
Stephen Peers, partner at Gerald Eve, said: “We will go through a period of market recalibration following the referendum. Tenants will push harder on terms, especially as the development pipeline expands, but only those with occupational flexibility can legitimately adopt these tactics.”
But amid the shadows cast by the referendum, high-profile deals at the start of Q3 – such as the acquisition of HB Reavis’s 33 Central scheme by US bank Wells Fargo – are breathing some much-needed confidence into the sector. Prime rents in both the West and the East were static during Q2, at £125 per sq ft and £70 per sq ft respectively.
Fergus Jagger, partner at Gerald Eve, added: “During Q2 we saw a pause as occupiers waited to find out the result of the referendum before committing to new space. Now that the outcome is known, we have seen some of these delayed transactions cross the line, although in some cases on a more incentivised basis than pre-referendum. “
“It is clear that Brexit and its effects will be a dominant factor in the central London office market for the foreseeable future, and sentiment will undoubtedly respond to both positive and negative indicators throughout the process of leaving the EU. That said, there is some light amid the gloom, with high-profile deals such as 33 Central demonstrating not only a willingness to commit to space, but also a vote of confidence in the City’s future as a financial centre.”