BNPPRE Central London Office Market Report – Q1 2017

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Overview

‘Resilient’ has been the word most often used to describe Central London over the last 10 months. This resilience has been underpinned by the capital’s solid property fundamentals which will continue to act as a draw for occupiers and investors throughout the upcoming Brexit negotiating period.

Low supply

Despite a rise in the vacancy rate in Q1 to 6.35%, it is still below the long term average and low in comparison to the historic trend. This cycle has seen lower levels of speculative office development due to rising construction costs and a lack of development finance.

Steady demand

500,000 sq ft of new requirements were launched in Q1, an indication that sentiment amongst occupiers has improved. Three large lettings of >100,000 sq ft to Freshfields, Expedia and Arup have demonstrated that Central London continues to attract occupiers across all sectors.

Robust economy

With Central London and the UK economy working very much in tandem, a robust economic picture for the UK bodes well for the capital. UK GDP growth has been revised upwards expected to reach 1.8% in 2017 and Central London will be driving this with 2.2% growth expected.

Currency discount

With the City seeing yield compression of 25bps this quarter, pricing hasn’t performed as some investors expected post Brexit. Discounts however have come in the form of sterling’s devaluation. In the short term we expect to continue to see a 10-12% discount for buyers purchasing UK Real Estate in US dollars.

Infrastructure projects

Europe’s largest infrastructure scheme Crossrail nears completion next year. The scheme will increase transport capacity and reduce journey times across the capital. London’s future as a world class city relies on continued investment into infrastructure, this is why projects like the Northern Line extension, HS2 and Heathrow’s expansion will be essential in securing this.