It has been a rollercoaster year, with November showing no let-up in the run of unexpected results on the world’s political stage.
In the midst of Brexit uncertainty, we see property lenders continuing to exercise prudence, the wider economy growing (by 0.5% in Q3) and signals – such as Nissan’s new commitment to Sunderland and Google’s to London – that Britain has a future as a thriving, open economy.
For now, the UK economy continues to move in a positive direction and the London office market is also showing resilience. In our own portfolio, Crédit Agricole has agreed terms to extend its lease at Broadwalk House, EC2, until 2025, and UBS – now moving into 5 Broadgate, EC2 – says it will not be making any changes to its London operations any time soon.
On the ground, too, we are seeing some positive signs. While discussions with potential occupiers fell away after the Brexit vote, almost all of them have now come back and we are in discussions or responding to RFPs on eight significant requirements across our London campuses. We also have strong interest in our 7 Clarges Street development, W1, and at 4 Kingdom Street, W2, occupiers in the tech, creative and media scene are running their slide rule over the building.
So London’s shorter-term prospects aren’t in such bad shape. But what about the longer term, with Paris, Frankfurt and Dublin all keen to challenge London as the European financial capital?
In my view, though the competition is palpable, the barriers are high for these cities:
● With a population of 12m, Paris can match London, but only 39% of the population are fluent in English, the language of international business. A bigger obstacle is France’s expensive operating environment, both through its 33% corporation tax and controlled working conditions. According to the French Banking Federation, on a like-for-like basis, a banker’s salary after all charges costs 34% more in France than in the UK.
● Frankfurt faces a large scaling-up challenge. Some 732,000 people live there, making it smaller than many UK regional cities. Employers may be able to draw on some of the 2.5m people living in the wider Frankfurt Rhine-Main region, but Frankfurt’s infrastructure could struggle to cope with a sudden population growth and steep rise in commuter journeys.
● Dublin is favoured by its English language, and has a larger population than Frankfurt (1.8m people in the metropolitan area). However, it already struggles with commuter congestion and high house prices, and a lack of suitable office stock will take time to resolve.
London also has a business ecosystem of a scale which is unique in Europe – where tech start-ups can work within a stone’s throw of the financiers, marketers and professional services they need to thrive. It is this ecosystem that we are aiming to reproduce on a smaller scale with a broader mix of occupiers across our campuses.
London also has other factors in its favour for corporate occupiers, with property, architecture and construction industries playing a big part in that alongside its cultural, legal and regulatory attractions.
In the UK we have world-class developments to the highest specifications, yet office rents still look affordable when compared with overall corporate costs.
In the past five years the UK has also seen the rise of a service-based approach to occupiers. As an industry, we have a strong record of providing the high-quality developments that customers want, and at British Land – where we view occupiers of our office and retail portfolios as customers, not tenants – this is at the core of our “Places People Prefer” strategy.
We are also at the forefront in Europe of embracing sustainability and adapting to new workplace trends, from wellness to co-working to all things tech – and this speaks to British Land’s campus story. The physical environment in London also continues to improve and I am generally reminded of how superior it is whenever I travel abroad.
We will look back on 2016 as a series of seismic events, but I end the year feeling cautiously positive about London. In the short term we continue to see encouraging signs of business, and in the long term the market is well-structured and maintains its historical attractiveness enough to suggest that London’s competitive prospects will endure through this uncertainty.
Tim Roberts, head of offices and residential , British Land
