Central London office activity slows as EU uncertainty hits market

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office spaceGiven the level of uncertainty around June’s Referendum on the UK’s membership of the EU, the £11.9bn invested into commercial real estate during the first three months of 2016 appeared robust. However, 50 percent of Q1’s volume was in January, with the data from Lambert Smith Hampton showing that activity tapered off significantly in the following two months. Anecdotal evidence clearly linked the slowdown directly to the approaching vote. As a result there was a significant fall in activity, which translated into a very quiet quarter for Central London Offices, where volume halved quarter-on-quarter to £2.2bn, the lowest quarterly total since the last part of 2011. Given that financial services is widely regarded as the most exposed sector to a possible ‘Brexit’, this sector appears to have suffered most from investor caution.In marked contrast, investment in the rest of UK Offices has remained buoyant at £1.4bn, the highest quarterly total since the middle of 2007.

The LSH report shows that Manchester was home to the largest office deal outside the South East, namely Ares Management LLC’s £115m acquisition of 3 & 4 Piccadilly Place from Carlyle Group.

The South East office market also remains buoyant. According to Colliers there was a 14 percent increase in the first quarter of this year compared to that for the same period in 2015, with 771,208 sq ft taken up across the region. This included two key transactions. Thales committed to 111,000 sq ft at 350 Longwater Avenue and Bayer leased 80,000 sq ft at 400 South Oak Way, Green Oak Way, both at Green Park, Reading. These deals boosted the Thames Valley take up figures, which accounted for the highest proportion of all take-up for the quarter at 383,440 sq ft.

The West London market continued to show strong performance with consistent quarterly and annual take-up growth. The most notable transactions include the letting of 42,000 sq ft at Building 7, Chiswick Park to Danone. One Queen Caroline Street in Hammersmith transacted two lettings with a combined 32,000 sq ft to AETN UK and Kambi Services.

Occupier’s preference for Grade A offices has continued into this year, with over 50 percent of total transactions across the South East office market being for Grade A stock, representing the fifth quarter in a row of such significant levels.