Brexit is undoubtedly suffocating the property market in 2019, with central London office investment in the first quarter of the year down by 40% on Q1 2018 to £1.5bn and take-up down 14% to 2.1m sq ft, according to the latest figures from JLL.
Despite the muted start to 2019, there is more than £2bn of investment transactions currently under offer and 3.3m sq ft of office space also currently under offer in the capital, JLL reported.
Of the office space under offer, 1.8m sq ft is in the City of London, 0.7m sq ft in the West End and a further 0.8m sq ft in East London.
Furthermore, demand for space across the capital remains ahead of the 10-year average, standing at 9m sq ft, with banking and finance and professional services accounting for nearly 30% of this, JLL said.
Domestic buyers were the most acquisitive group in Q1 2019, accounting for nearly 50% of all transactions. This is a significant shift from the final quarter of 2018, when more than 90% of deals were by international investors.
Julian Sandbach, head of central London capital markets at JLL, said: “A perceived reduction in competition for assets is benefiting investors that are still actively pursuing opportunities in central London and has resulted in strong pricing levels – with the ‘Brexit discount’ never materialising.
“We are seeing several drivers that are resulting in capital continuing to be deployed here, including the long-term belief in London and its fundamentals that many investors retain, along with its relative robustness and the potential benefits of currency changes. Undoubtedly clarity around Brexit will see transaction levels rebound in the second half of the year.”
Neil Prime, head of central London offices at JLL, added: “Given the ongoing political uncertainty, it is unsurprising that we have seen a quieter-than-average quarter across London’s investment and leasing markets. Investors and occupiers may be taking longer to conclude deals due to Brexit, but this caution has not manifested itself in a cessation of activity.
“One of the most evident impacts of Brexit has been the reticence to commit to development, which has resulted in historically low levels of new supply. A consequence of this has been a spike in preletting activity, which has further eroded the supply pipeline. Coupled with the sustained levels of demand, this has ensured that the fundamentals of London’s office market remain in place and that it can withstand the short-term impacts that the final ratification of the Brexit deal is causing.
“We believe that despite this current hiatus the capital retains its attractiveness to global investors, who take a much longer-term view, and to occupiers, who continue to commit investment into their occupational platforms to access London’s unrivalled talent pool.”
Main image © Rex/Shutterstock
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