_Central London Offices: Reports of the market’s demise have been greatly exaggerated

After the result of the EU referendum, it would have been unsurprising to have seen a significant drop in demand from both occupiers and investors as uncertainty over the future of the UK’s future deal with the EU dominated headlines. 

However, we find ourselves in a scenario where office take-up is stable at long-term average levels, supply has most likely peaked, and yields remain stable. 

We recorded 3.2 m sq ft of take-up in Central London in the second quarter of the year, taking the total for the first six months of 2017 to 6.3 m sq ft. It is worth highlighting that this is around 16% above the corresponding figure for the previous year, before the UK voted to leave the EU. 

Once again the technology, media and telecoms (TMT) sector was the most active, accounting for 30% of all take-up. However, the business-to-business sector, including serviced / flexible offices, came a close second, accounting for 27% of leasing activity. Driven by the ongoing expansion of WeWork, the sector has acquired more than 1.6 m sq ft since the referendum, and is likely to continue its expansion as tenants seek increased flexibility. In the long-term, however, we must consider the potentially negative effect of flexible space on the take-up of small units on traditional leases, which to date has held up well. 

It is this sustained demand, along with a shrinking development pipeline, that has helped keep supply levels in check. Central London availability remained stable at 16.2m sq ft, just marginally below the long-term average level. 

Central London investment stock remained in demand, with pricing stable at 4.25% and 3.50% in the City and West End markets respectively. Investment turnover fell during by 24% during the quarter to £3.59bn, although this remains above the long-term average. As has been the case now for some time, turnover was largely dependent upon stock availability, which we expect to increase over the course of the year as landlords look to capitalise on current levels of investment demand. 

As we move through the summer, there is little reason to expect any significant change in the current trends; occupier sentiment remains cautious (although not negative), and money from across the globe remains focused on London as a place to invest. Against a backdrop of political uncertainty, the Central London property market looks resolutely stable.

Read more in the latest Knight Frank Central London Quarterly Q2 2017