London Midtown office news 24th November 2016

The office market in London’s Midtown saw an increasing polarisation between new and second-hand space in the three months following the EU Referendum.

The latest market update from Farebrother shows that in the three months immediately after the vote, the availability of second-hand space rose by 31% to 948,693 sq ft as businesses sought to rationalise their offices.

With its high concentration of law firms, accountants and other professional advisers, Midtown is widely seen as being a likely ‘winner’ from the run-up to a Brexit as businesses take advice and reframe their operations ahead of life outside the EU.

Jules Hind of Farebrother comments: “The Midtown office market is clearly in transition at present. Some businesses are looking to minimise their property liabilities – hence the recent increase in tenant space being released onto the market – but others are gearing up for the new economic and political future.

“It is probably no coincidence that the biggest letting of the quarter involved WeWork at Aldwych House, WC2 - a serviced office operator which provides expansion and special projects space for businesses. The bulk of demand and consequential lettings is for units of up to 10,000 sq ft, whilst there is limited demand for larger requirements.

“We’ll undoubtedly see a softening in rents for some secondary accommodation, but the demand for new offices remains robust – especially as Midtown in terms of the percentage of total office stock has half the availability of the City postcodes immediately to its east.”

The Midtown office investment market in Q3 was dominated by a single transaction. RBS’s purchase of 440 Strand for £198m accounted for approaching two thirds of the total activity in the quarter of £349m.

Farebrother Investment Partner, Alastair Hilton, comments: “Midtown investment activity in Q3 was largely in line with the previous quarter, which is significantly below the 10-year quarterly average of £638m.

“Accordingly, we expect annual turnover to be down year-on-year to circa £2bn, from £2.65bn in 2015. In terms of who is active, we have recently advised on a number of transactions involving UK buyers, which reflects the continued return arbitrage. However, the inherent weakness in sterling will encourage overseas interest, albeit dependant on stock availability. The recent purchases of the Holborn Links Estate, WC1 and 120 Holborn, EC1 are good examples of this.”

The latest report also makes a comparison of the economic and property market fundamentals that prevailed in 2008 immediately after the financial crash and the equivalent metrics today.

Farebrother Senior Partner, Alistair Subba Row, comments: “The London market outlook seems uncertain given the ‘foggy’ economic and political conditions. Back in 2008 after the financial crash, we had higher interest rates and higher inflation than we see today.

“Given the continued uncertainty over the true impact of Brexit and the increased cost the 2017 Rating Revaluation will have on London businesses, we fully expect vacancy rates to rise.

“The successful property investors will be those who respond to occupiers’ size, specification and financial needs going forward.”