The office market in London’s Midtown has seen an increasing polarisation between new and second-hand space in the three months following the EU referendum, according to Farebrother.
Office availability currently stands at 1.7m sq ft, but the firm expects vacancy rates, particularly grey space, to increase.
The advisory firm has seen a 31% jump in the availability of second-hand space to 948,653 sq ft after the vote as businesses sought to rationalise their offices.
Farebrother senior partner Alistair Subba Row, said: “Back in 2008 after the financial crash, we had higher interest rates and higher inflation than we see today.
“Given the continued uncertainty over the true impact of Brexit and the increased cost the 2017 rating revaluation will have on London businesses, we fully expect vacancy rates to rise.
“The successful property investors will be those who respond to occupiers’ size, specification and financial needs going forward.”
But with its high concentration of law, firms, accountants and other professional advisers, the Midtown market is expected to benefit from businesses’ reframe operations to prepare for a future outside of the EU.
There has been a total of 444,926 sq ft of Q3 take-up, while there is currently 4m sq ft in demand. The DAMIT sector (design, advertising, ,arketing & PR, media, internet, technology and telecoms) accounts for 32% of overall take-up and 45% of demand. The legal financial professional services sector accounts for 12% of take-up and 26% of demand.
Jules Hind of Farebrother says: “The Midtown office market is clearly in transition at present. Some businesses are looking to minimise their property liabilities – hence the recent increase in tenant space being released onto the market – but others are gearing up for the new economic and political future.
“It is probably no coincidence that the biggest letting of the quarter involved WeWork at Aldwych House, WC2 – a serviced office operator that provides expansion and special projects space for businesses. The bulk of demand and consequential lettings is for units of up to 10,000 sq ft, whilst limited demand remains for larger requirements.”
The Midtown office investment market in Q3 was dominated by a single transaction. RBS’s purchase of 440 Strand for £198m accounted for almost two thirds of the total activity in the quarter of £349m – below the 10-year average of £638m.
The firm expects year-on-year turnover to be down to circa £2bn, from £2.65bn in 2015, but predicts that appetite from overseas buyers looking to capitalise on the fall in the value of UK sterling will continue.