Demand for new London offices to progress even as Brexit weighs: survey

London

DEMAND for new office space in London will continue even with the imminent exit of the UK from the European Union (EU), a closely-watched industry survey showed on Tuesday, with technology, media and telecom companies taking up most spaces in the city.

The London office market remains resilient despite the slow pace of Brexit negotiations and growing speculation about a no-deal weighing heavily on business sentiment, the London Office Crane Survey by Deloitte Real Estate showed.

"Development pipeline remains above average, suggesting stable office construction levels," Deloitte said in the report, adding that developer sentiment was positive with above average new construction activity.

"There is a healthy balance with a strong occupier demand and half of the office space under construction is already committed to," said Mike Cracknell, the director of capital projects advisory team at Deloitte.

Britain is due to leave the EU in March 2019, with the BBC reporting that the EU and Britain agreed to a draft Brexit divorce deal text on Tuesday. It remains unclear at this point whether Prime Minister Theresa May can get any deal approved by the British Parliament.

The survey echoed property consultancy Knight Frank's report last month, which showed that office take-up in central London was 6 per cent higher in the third quarter than a year earlier as businesses shrugged off Brexit uncertainty.

Some of the biggest central London property deals in Q3 were Facebook renting three buildings in the King's Cross Central development and Publicis Group take-up of space at White City Place, Knight Frank had said.

However, demand from financial services companies, which has dominated office pre-lets in London for the last three years, dropped to 24 per cent, Deloitte noted.

Deloitte said 3.2 million square feet was transacted overall in Q3, a 10 per cent drop sequentially, but well above the quarterly average, adding that this implied continued demand for office space, particularly from larger tech businesses.

The tally for office space currently in construction fell as a record number of projects were completed and handed over in the six months to September and as new projects accounted for less total space.

The survey showed 40 central London office schemes totalling 4.2 million square feet were completed in the survey period, the highest in over 14 years.

Construction began on 32 new central London office schemes in the six months ended Sept 30, but in terms of space, new starts totalled 2.6 million square feet, a drop of 18 per cent since the last survey. REUTERS