Broad base of Midtown office market can lessen Brexit impact
22 July 2016
The diversity and broad base of London’s Midtown office market means that it may be structurally better placed to withstand the impact of a ‘Brexit’ than other locations in London.
Jules Hind, Leasing & Development Partner at Farebrother comments: “While no London office sector is going to be immune to the implications of the referendum result, the characteristics of the Midtown market and its current demand/supply equation provide a comparatively resilient platform”.
There is currently upwards of 4m sq ft of identified occupier demand in Central London that is considering Midtown, but only around 851,000 sq ft of New and Refurbished space is available in the area. Currently, the level of available New and Secondhand space represents only 3.4% of Midtown’s total office stock. This is half the equivalent vacancy rate of the City market.
Jules Hind observes: “Clearly, some of the businesses which represent current demand will change their strategy in the coming months, but the Midtown market is driven by a large number of requirements of less than 10,000 sq ft and this makes it less susceptible to changes in the requirements of individual businesses.
“Lettings in the sub-10,000 sq ft bandwidth accounted for 84% of the 478,286 sq ft Take-up in the 2nd Quarter of this year – which was in line with the three-year average. This broad base of demand makes Midtown more robust than locations which depend on a flow of larger scale lettings”.
The Farebrother research also highlights that some business sectors may be positively impacted during the period in which a UK exit from the European Union is negotiated.
Jules Hind comments: “Whilst the overall economic impact of a Brexit is not yet clear, there will undoubtedly be a greater demand for legal, accountancy and other consultancy services as businesses establish what the future will mean for them. More than a third of the UK’s Top 100 law firms have office representation in Midtown.
“However, against a backdrop of uncertainty and more cautious expansion, it will be increasingly important that that the pricing and quality of office space is precisely aligned to occupier requirements”.
Midtown has remained a target for overseas investors who were responsible for 61% of the £364m of investment turnover during the 2nd Quarter. Alastair Hilton, Farebrother’s Head of Investment, comments: “After an exceptional 1st Quarter which saw £1bn of Midtown investment deals completed and a quieter 2nd Quarter, volumes in the first half of 2016 ended up reflecting the ten-year quarterly average of £660m.
“Activity slowed markedly ahead of the referendum and this trend is likely to continue in the near-term as investors re-evaluate the market. However, a weakening of sterling and the perception that - if yields soften - there may be value opportunities, should mean that overseas investors will keep a close interest in the market”.