Fears of finance jobs leaving London “overblown”

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Fears of finance jobs leaving London are “overblown”, says Knight Frank.

As the triggering of Article 50, which will begin Brexit negotiations between the UK and the European Union, looms on 29th March, the agency’s latest research says that focusing just on what banks may or may not do is missing the bigger picture.

“Recent weeks have seen a number of statements by policymakers in the EU that suggest the impact of Brexit on London’s financial hub may not be as great as initially feared. An air of compromise appears to be emerging,” says James Roberts, Chief Economist of Knight Frank.

“The message from senior policymakers in Germany is clear that there is going to be change, but no-one wants a cliff edge, and London is a great market place for European firms to raise finance. This supports our view that some finance jobs will leave London, but probably thousands not tens of thousands of posts.”

While fears of a mass exodus have been exagerrated, though, Roberts argues that, more importantly, a shift is taking place in the office sector, as the finance world becomes less important.

“Back office jobs have been leaving the capital, but this evolution away from finance is ultimately leaving the London economy stronger,” argues Roberts.

Indeed, the UK capital is turning from a back office market to a front office market, with those in London office spaces tending to be senior executives. The rise in the technology and media sector, meanwhile, has already seen their job numbers overtake those of the finance world.

With tech and creative districts like Shoreditch and Southbank dovetailing with growing demand from a new wave of occupiers, the office market in London is evolving, rather than collapsing.

“Process jobs are leaving, but being replaced by high value jobs in growth sectors like tech,” concludes Roberts. “The demise of London’s back offices only becomes a problem if the rise of new sources of employment fails to keep pace. If the TMT sector in London continues to grow at its average rate over the next three years, enough jobs would be created to offset a 15 per cent fall in financial headcount.

“Central London will in our opinion lose a few thousand jobs to other European cities over the next three to five years,” he predicts. “The losses will be made up from 2019 onwards, as the City institutions find new ways to make money outside the European Union.”

 

London office market moves on from Brexit shock

10th March 2017

London’s office market has moved on from the initial shock of the UK’s Brexit vote.

As the UK works through the complex Brexit negotiations that lie ahead, Cluttons cautions that uncertainty will still hang in the air. The real estate consultancy’s latest quarterly report, though, shows that the city is already moving on from an initual period of anxiety, with Q4 2016 marking a U-turn in conditions and attitude.

Total take up in the Central London office market during 2016 was down by close to a fifth on 2015, but take-up volumes in Q4 across Central London rose to nearly 3,520,000 sq ft, up 72 per cent on Q3 – 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.

In the investment market, sterling’s prolonged weakness has attracted significant international capital, with Chinese investors being especially active. Beijing Capital Development, for example, purchased the 92,000 sq ft premises of Fleet Place House for £108 million, reflecting a yield of 4.35 per cent.

Faisal Durrani, head of research at Cluttons says: “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. Of course, this in addition to pent up activity from the inevitable Q3 Brexit referendum quarter which saw occupiers moving into a holding pattern.”

Still, Cluttons claims there is less appetite for risk at present, so assets with vacancy and short term income are less favoured.

Ralph Pearson, Head of Commercial Agency at Cluttons, adds: “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. 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 here for the foreseeable future.”

 

Central London has not lost its global appeal

7th February 2017

Central London offices have not lost their global appeal since the UK’s vote to leave the European Union, with take-up from the technology and media sector on the up.

There has been lots of speculation surrounding the future of the UK in the financial and business world, as the country prepares to negotiate its exit from the EU.

In January 2017, Prime Minister Theresa May set out her negotiating position for talks on leaving the European Union. That speech indicated a “hard Brexit” is on the cards, and EU leaders responded with their previous line of “no Brexit a la carte”. However, Knight Frank is optimistic about the outlook for the UK capital, citing the confidence of the global technology industry, which has shrugged off Brexit concerns and continued to expand its presence in London.

Headlines in 2016 were dominated by Apple’s pre-let of 500,000 sq ft at Battersea Power Station, which was the largest office letting in London’s West End and Southbank for the last 20 years. However, total take-up from the TMT sector in 2016 was more than 3.0 m sq ft, which Knight Frank highlights as indicative of “growth across the sector and not dominance by a few major players”.

Indeed, following Apple’s big deal, Amazon decided in Q4 to take the remaining space in Principal Place, while in January SnapChat said it would establish its European HQ in London.

“The recent news that Snapchat is to make the UK its main hub outside the US will help fuel demand in the coming year,” says Knight Frank.

In the City of London, take-up for the final quarter of 2016 totalled 2.0 m sq ft, the highest since Q3 2015 and a 62 per cent increase on the previous quarter’s level. Activity was well above the long-term quarterly average of 1.7 m sq ft, and was driven by strong activity across the majority of submarkets.

Despite the strong final quarter, though annual take-up totalled 6.2 m sq ft, significantly lower than the previous year and 12 per cent below the long-term average level.

In the West End, take-up fell after the strong third quarter, which had been driven by Apple’s pre-let at Battersea Power Station. Demand in Q4 2016 totalled 1.02 m sq ft, 26 per cent below the level recorded in Q3.

Nonetheless, the outlook for 2017 appears positive; at the year-end Knight Frank was tracking 2.7 m sq ft of active requirements focused on the West End market, the highest since 2007 and 44 per cent above average.

Across the capital, London’s global appeal was evident throughout 2016. Seven of the 10 largest occupier deals last year were to overseas corporations, particularly from North America, which is the same as in 2015. Of the £9.3 bn of overseas money invested in Central London offices in 2016, 80 per cent came from outside of Europe. China and Hong Kong were the largest source of foreign investment, accounting for £2.9 bn, which was 60 per cent more than that deployed by Europeans.

“Losing access to the City of London, the marketplace for 78 per cent of European foreign exchange deals, presents a huge threat to business continuity in Europe,” notes James Roberts, Chief Economist at Knight Frank.

“Brexit will in 2017 recede as a potential threat for London’s economy, as this truly global city already operates far beyond the EU,” concludes the report.

 

Central London office take-up rebounds

12th December 2016

Central London office take-up is rebounding at the end of 2016, according to the latest figures from CBRE.

Take-up in November rose to 1m sq ft, a monthly increase of 118 per cent and in line with the 10-year monthly average, according to the latest figures from global real estate advisor CBRE.

Take-up was boosted by a number of large deals. A total of six deals of over 50,000 sq ft transacted during the month, more than any other month so far this year. The largest deal of the month saw Fidelity acquire 105,800 sq ft at 4 Cannon Street, EC4.

The business services sector represented the largest proportion of take-up in November at 27 per cent, followed by banking and finance (16 per cent). Over the last 12 months, the creative industries sector has represented the largest proportion of take-up in Central London at 26 per cent.

Availability in Central London increased by 4 per cent in November 2016 to stand at 14.2m sq ft representing a year-on-year increase of 29 per cent. Despite the increase, availability remained below the 10-year average of 14.6m sq ft. The increase in availability was reflected in the Central London vacancy rate which rose to 4.3 per cent from 3.8 per cent.

Due to the completion of a number of large deals, under offers fell by 12 per cent over the course of the month to stand at 2.9m sq ft. Despite the fall, under offers in Central London remained 4 per cent above the 10-year average of 2.8m sq ft.

The figures come as some reassurance, following the uncertainty surrounding the UK’s vote to leave the European Union.

“Renewed leasing activity in the Autumn was buoyed by sentiment that the London economy is robust in the wake of the referendum, translating into more space being taken in November,” comments Chris Vydra, Head of City Office Leasing at CBRE. “The market was also boosted by mergers in the legal and insurance sectors, creating new space requirements.”
 

Battersea Power Station demand shows office occupiers are looking past Brexit

18th October 2016

Recent demand for space in Battersea Power Station shows that occupiers are looking past Brexit uncertainty to London’s long-term office market.

467,300 sq ft at Battersea Power Station was let to Apple last month for its London HQ, a deal that means the creative sector represents the largest proportion of take up in the quarter, constituting 33 per cent of the total. Combined with a 220,700 sq ft owner occupier acquisition at 33 Central, King William Street, the two major deals fuelled a rise in office take-up in the capital.

Indeed, take-up of London office space rebounded in Q3 2016 after a weak second quarter, according to CBRE. During Q2 2016, heightened uncertainty, partly due to the pending EU referendum, saw take-up fall 22 per cent to 2.4 million sq ft. In contrast, Q3 2016 saw a quarterly increase of 21 per cent, with a total of 2.9 million sq ft of office space acquired. Take-up was therefore close to the 10-year average of 3.1 million sq ft.

The increase coincided with an increase in availability for the sixth consecutive quarter, driven principally by 534,000 sq ft of additional secondhand space. Consequently, availability rose by 3 per cent to stand at 13.7 million sq ft, yet remains 6 per cent behind the 10-year average of 14.5 million sq ft.

The amount of space under offer in Central London fell by 23 per cent over the course of Q3 to 3 million sq ft following the signing of these large transactions. However, the amount of space under offer remains above the 10-year average of 2.8 million sq ft and active demand in London remains high. At the end of Q3 2016, there were 14 requirements for space over 100,000 sq ft.

“The message to take from recent market activity at Battersea Power Station and 33 Central is that occupiers are willing to look past short-term volatility in the market,” says Emma Crawford, Head of London Leasing at CBRE.

“London remains open for business – unemployment in London is the lowest it has been for 30 years, there is a buoyant job market and it has one of the most diverse workforces in the world. Consequently, the capital remains at the forefront of occupier’s strategies looking to expand, and the creative and tech industries are becoming increasingly dominant, a trend I expect to continue.”

 

Take-up of London offices bounces back post-referendum

24th August 2016

Take-up of London office space bounced back after the EU referendum, reveal new figures from CBRE.

After a pre-referendum dip, the amount of Central London office space leased by businesses rose 24 per cent to 980,400 sq ft in July 2016, markting the strongest monthly average since March this year.

Appetite for London office space was validated by three deals over 50,000 sq ft in July, including a major move by Wells Fargo for 220,700 sq ft of space in the City of London, at 33 Central, King William Street, EC4. The move has been widely seen as a vote of confidence from the banking and finance sector after the vote to leave the EU. The sector accounted for 31 per cent of take-up in July, followed by the business services sector (22 per cent) and creative industries (17 per cent).

July’s office take-up in Central London remained below the 10-year average of 1.1m sq ft per month, but above-trend leasing activity in the City and Southbank suggests that businesses still see London as an attractive place to locate. Indeed, much of the development pipeline is already pre-let, with 46 per cent of the 5.1m sq ft of space expected to complete before the end of the year already pre-committed to occupiers.

Office space under offer fell by 14 per cent over the course of the month to stand at 3m sq ft as a number of large deals completed. However this remains 7 per cent above the 10-year average of 2.8m sq ft; another indicator of strong demand.

“Much has been said about the health of the London office market this year, but clearly demand for office space remains buoyant,” says Emma Crawford, Head of Central London Leasing for CBRE. “Businesses are still confident about London’s significant advantages as a global business centre, even when the UK is outside the EU. This continued demand, mostly driven by key lease events, in a market with low supply, is maintaining headline rents at the same rate as in May and June.”

 

City of London stays strong post-Brexit

15th August 2016

The City of London stayed strong in the aftermath of the UK’s Brexit vote, according to Savills, with take-up rising in June.

Take-up for month of the EU referendum was 440,638 sq ft, bringing the year-to-date City total to 2.6m sq ft. While this is 31 per cent down on this point last year, Savills notes that this is in-line with the 10-year average for the first half of the year. Indeed, 15 transactions have been recorded so far in 2016, up 16 per cent on the 10-year average.

“Furthermore, 82 per cent of all transactions to date have been of a Grade A standard,” comments the report.

The largest deal of the month was the acquisition of 47,101 sq ft at Beaufort House, 15 St Botolph Street, EC3 by Instant Managed Offices. The serviced office provider took the space on a five-year lease at £40.00/sq ft. Another notable deal was at The Whitechapel Building, E1. Perkins & Will took the third floor (26,641 sq ft) on a 10-year lease with a fifth year break at a confidential rent.

June’s activity has brought the 12-month rolling take-up figure to 6.2m sq ft, which is still 25 per cent up on the long-term average.

Total City supply stood at 6.4m sq ft, equating to a vacancy rate of 5.2 per cent, up on this point last year by 0.5 per cent. The rise in supply is a result of schemes scheduled to achieve PC in Q4 being added to current supply, such as Angel Court (312,000 sq ft) and Creechurch Place (273,000 sq ft).

“Despite occupier uncertainty both prior, and post, the Referendum, rents have seemingly not been affected,” says Savills. “The average grade A rent for the first half of this year is £62.25/sq ft, which is higher than any annual equivalent on record and up on the 10-year annual average by 31 per cent.”

London office leasing dips amid Brexit uncertainty

18th July 2016

London office leasing has dipped amid Brexit uncertainty.

Take-up for London office space fell 22 per cent quarter-on-quarter to 2.4 million sq ft in Q2 2016, while available space increased for the fifth consecutive quarter to 13.3 million sq ft, according to CBRE.

The second quarter saw take-up of Central London office space dip to its lowest level since Q3 2012, 23 per cent below the 10-year average of 3.2 million sq ft, as EU uncertainty weighed on the minds of businesses operating in the capital. The subdued second quarter followed a buoyant start to the year, signified by five leasing deals exceeding 100,000 sq ft.

Under offers in Central London fell by 3 per cent to stand at 2.9 million sq ft. Despite the fall, under offers remain high relative to the trend level of 2.7 million sq ft.

While occupier activity waned in response to the political outlook, available office space increased by 8 per cent to stand at 13.3 million sq ft, a fifth consecutive rise since Q2 2015, but still below the 10-year average of 14.5 million sq ft. This surge of availability, caused by a rise across the board of secondhand, completed and pipeline space, meant that supply exceeded total annual take-up for the first time since Q4 2013.

CBRE forecasts the upward trend in supply to continue due to a “strong development pipeline”. 1.7 million sq ft of new stock entered the market in the first half of 2016, with another 5.1 million expected to complete by the time the year is out. London’s appeal has not been lost, though: 46 per cent of this is already pre-committed to occupiers.

“As we emerge from a quarter characterised by referendum uncertainty, it’s not particularly surprising to see some occupiers opted to delay decisions until the political storm had passed,” says Emma Crawford, Head of London Leasing at CBRE. “While the referendum may be behind us, the political uncertainty continues, but the appointment of a new Prime Minster is already helping to steady the ship.”

CBRE forecasts activity to remain subdued as the “macro economic environment remains uncertain”, but notes that, much like the residential housing market, the fundamentals of the office market remain strong and “ultimately will outweigh any short-term negatives”.

“London’s size, the transparency of the market, the rule of law, the advantages of having the pound and the English language remain unabated,” adds Crawford.

London office investment defies EU jitters

4th May 2016

Global capital investment into London’s office market remained strong at the start of 2016, as the city defied EU jitters ahead of the UK’s Brexit referendum.

The first quarter of the year is usually subdued, but CBRE reports that investment in London’s offices across the first three months totalled £3.5 billion – down 14 per cent on a strong Q4 2015 but on a par with the seasonal dip recorded in the first quarter of 2015.

There were 43 transactions in Q1, the lowest number since 2010, but the highest number of large deals above £100 million in value in any comparable quarter since CBRE records began in 1985.

The market continues to be dominated by international investors, who were involved in 67 per cent of all transactions, down from 71 per cent in Q4 2015. Overseas buyers accounted for more than £2.4 billion of investment, with many taking advantage of the weak pound and lower competition over prime locations. In March, London retained its status as the most popular EMEA destination in CBRE’s Investor Intentions Survey.

Following this strong start to 2016, CBRE projects investment volumes will be more subdued in Q2, as some investors delay decision-making in the run up to June’s EU referendum, but expects volumes will rebound in the second half of the year, as long as Britain remains in the EU.

Jamie Pope, Head of London Capital Markets, says: “Some investors are experiencing a degree of political and economic uncertainty at the moment, so it’s heartening to report that this hasn’t caused much in the way of turbulence in the London office market in the first quarter of the year. Yields are stable, and the prevailing conditions are in some cases making investment at this time a more attractive prospect.”

Demand for London offices brushes off Brexit worries

19th April 2016

Demand for office space in London remains high at the start of 2016, as the sector brushes off any fears surrounding the upcoming EU referendum.

The potential for a Brexit in June 2016 has prompted some uncertainty in the UK real estate industry, from slowing construction output to potentially cooling sales activity. Nonetheless, 3.1 million sq ft of the capital’s offices was snapped up by companies in the first quarter of the year, according to CBRE, despite fears that economic headwinds and the possibility of Brexit could dampen demand.

The figure is only marginally below the 10-year average of 3.2 million, with a major move by Thomson Reuters (to take 315,400 sq ft at 5 Canada Square in the Docklands) lifting overall take-up for the quarter. The amount of office space currently under offer remains unchanged from the previous quarter at 3 million sq ft, having remained above the 10-year average of 2.8 million sq ft since the beginning of 2014.

Emma Crawford, Head of Central London Leasing at CBRE, comments: “Between a weak outlook for global economic growth and an upcoming vote on EU membership, businesses have had to contend with a heightened level of uncertainty. That demand for office space has remained so resilient speaks volumes for London’s ongoing attractiveness as a global hub for those companies hoping to lay down roots or expand their footprint in the capital.”

The development response has so far tracked demand, with supply increasing by 2 per cent over the course of the quarter to stand at 12.2 million sq ft, some 17 per cent below the 10-year average.

“Whilst the high level of space under offer is particularly encouraging, we anticipate a more subdued Q2 as the referendum vote gets closer,” adds Crawford. “We will be on course for a rebound in leasing activity in the second half of the year provided the UK votes to remain in the EU.”

Investment in London offices set to top 2014 records

4th November 2015
Investment in London offices is on course to top the record set last year.

46% of the 200 property elite surveyed at CBRE’s ‘Booming London: How Long Will it Last?’ event yesterday morning forecast a flurry of activity in the last quarter of the year, and expect 2015 to represent the peak of investment turnover in the capital.

Indeed, while investment volumes fell 17 per cent in Q3 to £3.8bn, the total for the first three quarters of the year is still £200m ahead of the pace set last year.

One in five (21 per cent) now think 2016 will be the strongest year for investment inflows, with a further 10 per cent believing investment will continue to climb into 2017 and beyond.

Driving this investment, CBRE forecasts that prime yields in London City will remain at 4 per cent in 12 months’ time. Yields are influenced by a wide range of factors, but interest rates play an important role. Asked when the Bank of England will start to raise rates, over half (55 per cent) of the attending property professionals expect them to remain at 0.5 per cent until the second half of 2016, while a further quarter don’t anticipate a rise until 2017.

“London offices have gone from strength to strength, so it’s only natural to start asking how long this boom can last,” says Kevin McCauley, CBRE’s Head of Central London Research. “At present however, there’s no sign that 2016 will be anything like 2007.

“Furthermore, the development pipeline isn’t threatening over-supply in the near term. Overall London’s safe haven status will continue to attract capital from overseas investors, which will soon rebound from a recent slowdown to grow in the medium to long term.”

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