London’s office market is under growing pressure from the UK’s decision to leave the European Union as it could result in a significant corporate exodus from the capital, Deutsche Bank has warned.
Earlier this week, Deutsche downgraded Derwent London Plc and Intu Properties plc to ‘sell’, saying it remained cautious on the office market in London due the potential adverse impact that the referendum outcome could yet have on the office market.
The German broker said in a note: “This [the Brexit vote] has the capacity to increase vacancy to historical peaks and after speaking to numerous legal and political experts, we think this risk is under-appreciated.”
CBRE reported last month that City of London office values dropped by 6.1% in July on heightened economic uncertainty, particularly for financial-services firms.
The slowdown in market has already led to reports suggesting that plans for London’s tallest office tower could be scrapped. This follows on from the Brexit vote, as it is now feared that the 22 Bishopsgate project, overseen by AXA’s real estate unit, would provide in the region of 1.4 million sq ft of offices and shops, adding to a potential oversupply of office space, with about 6.4 million sq ft of office space set to be completed in the district over the next two and a half years.
Despite the fact that the market is cooling, it would appear that many investors are being left frustrated in their efforts to negotiate significant price reductions, according to Jones Lang LaSalle.
“We are seeing a lot of demand from Europeans and Asians for investment purchases in London, but we are not seeing any sales because the sellers are saying ‘I am going to wait’,” said Colin Dyer, chief executive officer of JLL. “Investment markets are much more on off, and they can react quite quickly, so they switched off very fast.”