Brexit and the City: the real estate agent's view
LONDON, March 28 (Reuters) - Like the towers now dominating
its skyline, London property prices have moved in almost only
one direction in recent decades, ever higher.
But uncertainty surrounding Britain's impending European
Union exit and fears of an exodus of thousands of financial
sector jobs, have cast a shadow over commercial property.
Reuters has created a Brexit tracker that monitors six
indicators to help assess the economic fortunes of "the City" as
Brexit talks progress.
In the second edition of the tracker, almost a year before
Britain is due to leave the EU, the tracker suggests London's
financial districts have been held back in some respects, but
there is no evidence of a mass exodus of jobs or business.
One of the indicators - commercial property prices in the
City of London (LSE: CIN.L - news) - are now at the highest level since after the
Brexit vote in the third quarter of 2016, driven by a surge in
office purchasing and leasing in the final quarter of last year.
The price of renting real estate in the City of London
district rose 9.5 percent in the last three months of 2017,
climbing to 78 pounds ($107) per square foot, from 71.21 pounds
in the third quarter of 2017, Savills (Stuttgart: 1YZ.SG - news) says.
Mat Oakley, head of European commercial research at Savills,
says that deals were now taking longer to sign and investors
were seeking clarity over Britain's future status.
Q: Talking specifically about the City of London, how is the
commercial property market looking at the moment?
A: I think as we said last time, it was definitely
surprising on the upside in 2017, and actually the total volume
of office space leased in the City was about 26 percent up last
year on the year before, which is definitely not what we were
expecting at the beginning of the year.
Q: Since we last spoke to you have there been any changes,
anything of interest in the sector?
A: 2018 started relatively quietly actually. There’s
definitely a sense that deals are taking a little longer to sign
at the moment than perhaps they were 12 months ago, but there’s
around three million square feet of office space currently under
offer in the City of London by tenants, and that’s pretty much
the normal level for this time of year, maybe even slightly
above.
Q: What are your concerns about Brexit and how it could
impact the sector?
A: In terms of the shock of Brexit, I think it’s very
difficult to tell when it’s actually going to land, and I think
there will be different effects on different parts of the
market. Investor (LSE: 0NC5.L - news) confidence could be hit if we get the wrong
result or no result in 2019, but I think occupational confidence
in terms of big businesses’ positions in London is probably a
longer term risk. We don’t see the weight of concern about
Brexit perhaps falling until after 2021-2022 when businesses
have been able to see what impact its had on their businesses.
Q: Do you think some people are holding out to see how
(Brexit) negotiations go? If negotiations go well do you think
you might see a big boost in business?
A: There are an awful lot of perhaps more opportunistic
investors possibly quietly hoping for a bad deal that might
cause prices to slip in their favour. I think it's relatively
unlikely at this stage, but certainly there are people looking
at both the upside and downside as an opportunity for them as an
investor in the UK.
Q: What Brexit issues most need to be resolved for your
sector to feel secure?
A: I think the most important issue that we need to resolve
is actually just one of certainty. At the moment we don’t really
know when the biggest moment of risk is going to occur, we don’t
know where it’s going to occur and we don’t know what industries
it is going to effect, and I think everyone is operating in this
relative vacuum.
So there’s an awful lot of speculation, there’s an awful lot
of contingency plans being written, but nobody really wants to
make dramatic decisions, either pro-London or anti-London, until
we see a little bit more clarity. So, I think clarity is what
everyone is looking for at the moment.
(Reporting by Ciara Lee; Writing by Mark Hanrahan
Editing by Alexander Smith)