Nery Alaev

London office glut threat exacerbated by Brexit?

Nery Alaev writes about London’s office market.

A recent story in Bloomberg about Barclays plc’s decision to cut 5,000 desks, or about 25% of its London office space, has highlighted fears of a glut in the capital which may lead to drops in rent as developers struggle to attract tenants.

I’ve decided to look further into the news.

London, 2012. There is a potential office glut in the capital.

London – is there a glut? 

Developer scrum

In the six months through March 2016, developers in the capital looked to capitalise upon high rents by engaging in record levels of office projects in London.

As it turns out, the supply of new offices is a larger threat than Brexit itself, but the latter clearly exacerbates the former by encouraging institutions to move their workers away from the capital to offices elsewhere – something I’ve written about before.

Drop in value

In July, office values in the City of London fell the most in at least seven years after the shock vote to leave the EU

The referendum result has seriously challenged London’s almost infamously-high rents. As the Bloomberg article notes:

‘The referendum result is already forcing landlords to offer longer rent-free periods to attract occupiers and will cause rents in the City and docklands to fall 10 percent to 12 percent over the next two years, according to broker Carter Jonas.’

The issue seems to be somewhat relegated to financial companies. For example, William Beardmore-Gray, who leads Knight Frank’s leasing business, says:

“Retrenchment in the financial sector will help fill the gap between demand and supply.

Firms outside of finance have moved on from the referendum vote and are back out looking for office space, especially tech and creative firms, because their lease expiries are not going away.”

It seems that tech and ‘creative’ firms are moving forward – but if they rely on the finance industry (Fintech, financial marketing, etc.) they may struggle over time.

Photo by George Rex.

Nery Alaev

Nery Alaev is the current Director of ESN Investments GmbH, which engages in acquisition and development of commercial and residential property in Germany and Austria.