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 - 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 $107 (R1 500) per square foot, from 71.21 pounds in the third quarter of 2017, Savills 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 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 favor. 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.