BNP Paribas Real Estate reports robust demand for office space in London in H1
...despite lingering market uncertainty.
Activity in the occupier market is holding up particularly well, driven by a strong growth. Take-up reached 5.9 million sq ft in H1, this is in line with the long-term half year trend, albeit down on last year’s exceptionally strong result.
On the other hand, the office investment market has seen comparatively weaker transaction volumes, with uncertainty likely to have dampened the immediate appetite to transact. Typically occupier and investment markets are strongly aligned, however a divergence has manifested over the last two quarters. Early data readings indicate that central London transactions are down circa 44% on the previous five year H1 average, with investors and owners unmotivated to transact while the “fog of Brexit” remains.
BNP Paribas Real Estate led on the two largest leasing deals in London this year totalling over 600,000 sq ft. This included acquiring EBRD’s new 360,000 sq ft HQ, at 1-5 Bank Street, and subletting on behalf of the European Medicines Agency 285,000 sq ft of office space to WeWork, at 30 Churchill Place, both in Canary Wharf.
Leasing activity at Lendlease’s IQL, is also progressing well and BNP Paribas Real Estate has let two 20,000 sq ft units this year to the Nursing and Midwifery Council and the Insolvency Service, demonstrating stable occupier demand for quality space.
The strength in the occupier market has been underpinned by sustained, strong jobs growth (particularly in the office occupying sectors). With the unemployment rate at 3.8%, its lowest level since 1974, the associated demand for office space has continued through the recent uptick in uncertainty.
Etienne Prongué, Deputy CEO at BNP Paribas Real Estate suggests occupier demand across the UK remains healthy, underpinning income security for investors.
“Since October 2018 we have seen an incremental increase in the risk premium on UK commercial real estate, which should encourage further capital allocation into the UK Property markets. The pound has also depreciated 5% against the US Dollar and the Euro since May alone, which is another reason why London remains an attractive destination for investment. Despite the prolonged political uncertainty, occupiers continue to commit to space in the capital; a supply-side shock to market conditions is also unlikely with the restrained level of office development in the pipeline.”
The vacancy rate in London has remained stable in H1 at 5.5%, this remains well below the long-term quarterly average of 6.7%.