Headline office rents are holding firm across the UK in the wake of the leave vote, according to the UK Office Market Pulse published quarterly by national commercial property consultancy, Lambert Smith Hampton.
Rental levels are being supported by an ongoing shortage of good quality stock across many markets, with the impact of the vote expected to be largely reflected through a softening in rent-free incentives.
15 UK markets have recorded an increase in headline rents during the first half of 2016, with notable rises seen in some markets such as Hemel Hempstead (+25%) and Watford (+20%). Mayfair was the only UK market to see a fall in prime headline rents in H1 2016, falling to £120.00 per sq ft from the recent high watermark of £125.00 per sq ft.
Meanwhile, UK-wide occupier transactions were also resilient in Q2, with overall take-up only 8% below the ten-year quarterly average and the total for H1 2016 in line with the half-year average. However, there was a notable divergence in trends, with the UK’s key regional markets bolstering the market against subdued activity in Central London.
Tony Fisher, national head of office agency for Lambert Smith Hampton, explains what the future holds: “Despite uncertainty, deals, interest and headline rents have remained healthy outside of London so far, however, if sentiment continues to be hit, headline rental growth that would otherwise have occurred will be dampened, with the risk of incentives increasing. A big plus is that supply is relatively tight, which should help to support headlines.
“In terms of Central London, the supply of grey space which occupiers may bring to the market during 2017 should they consolidate as a result of Brexit is unknown and we do not expect to see rental growth here. The City, Canary Wharf and Docklands are likely to see the biggest impact as they are the most exposed given their financial services focus.”
Charlie Lake, capital markets director, adds: “It is encouraging to see H1 take-up maintaining momentum across the regions. Investors will be eagerly watching to see if the recent strength of enquires is borne through in H2 and, elsewhere, defensive opportunities continue to attract a premium in what is quickly becoming a market with limited opportunities.”