Home Commercial Property Brexit uncertainty: Why leasing an office now could be the perfect time

Brexit uncertainty: Why leasing an office now could be the perfect time

by LLP Reporter
19th Sep 19 1:36 pm

There is no doubt that the shadow of Brexit is currently casting uncertainty on almost every aspect of the UK and its day-to-day running. Property and the leasing of commercial office spaces is no exception. However, if you are currently on the fence about leasing an office space in Central London, now could be the best time to make your move. Several factors have come together to create a unique market, which is likely to work in the tenant’s favour. We have put them together to explain why you should consider leasing now, even in the face of Brexit uncertainty.

Declining rents

Rents in inner-city London are certainly in a period of decline. For example, in City Core East, average rents in the office submarket sector have fallen by roughly 5% over the last two years, according to research by Costar. This is partly due to Brexit uncertainty. Leasing has slowed down as decisionmaking has been affected by Brexit, and as a result rents have declined. This means that now is perhaps excellent time to make a move and secure lower rent rates on office leases. However, where you want to lease also makes a difference. City Core submarkets with lower than average rents, such as City Core East, where average rents are just under the market rate of £57 per square foot for 2019, offer you a unique position to negotiate and secure a smart deal when leasing an office space. This could include a 9 to 12 month rent free period and the opportunity to lock in for the next five or 10-years.

Mass movement. In or Out? That is the question

Due to Brexit uncertainty, many businesses have moved, or are considering moving, their operations out of the UK and into other European countries. A case in point is Beazley and XL Group, who have moved their headquarters to Dublin as part of their Brexit plan.

But what does this mean for others – especially in the technology space?

Currently, the value of London’s Fintech start-ups is greater than the entire national economy of France. No doubt, this is driven in part by HMRC’s advantageous tax relief granted to a company, which has increased to 230% on their qualifying R&D costs.

Innovative firms and companies are advancing in their field and industry, with the ability to roll out new technology and create beneficial products and services. Company leaders understand the
underlying economics of the real estate market in the UK, especially the demand to trade being driven by a highly sought-after location such as London. Thus, they understand the mass appeal for businesses who want to secure medium to long term office leasing.

With several companies leaving, it is freeing up valuable space for new firms. By taking advantage of the current decline in rent rates, it is now easier to secure commercial space with better terms and prices in the UK.

New buildings

Back in 2015, there was a rise in construction starts due to success with deliveries in 2014, coupled with rent growth. Some of these new buildings are set to be occupied, mainly by companies who chose to pre-let them. However, this is not the case for all of them. Seventy St Mary’s Axe was delivered in the first quarter of 2019, but as of August of the same year, two-thirds of the space was still available. This may be due in part to Brexit uncertainty and some choosing not to sign leases in the face of it. It does, however, open opportunities for others to take a lease that they may not have otherwise considered, or indeed been able to take. The knock-on effect will be felt by other commercial property owners and landlords all the way down the street to Shoreditch and Aldgate, meaning excellent opportunities for new firms to secure brand new office space.

Cooling demand

There are several reasons why investments have been cooling off recently, and Brexit uncertainty is one of them. However, there is also less demand coming from the East Asian market and fewer deals in the most prestige markets, such as City Core East. Less interest from investors, particularly from East Asia, opens the door for investors from other markets, such as the USA, Canada, India and Israel.

With Insurance tech firms looking to grow and disrupt, they may want to do so in the same City Core East area of London as the original Insurance brokers and firms who have occupied the area since the 1700s. With Lloyd’s of London opening an office in Brussels as part of their post-Brexit planning in 2017, there are signs that there may be a greater emphasis on new ideas, new growth, and new life in the City Core East pocket of London, replacing the culture of the grey suits.

It is a known fact that when leasing or buying a commercial space, the secret to success is to save or make money going into the deal, not after. It is starting to show that there are several very good reasons why making a move into a new office space now could be the best time, despite Brexit uncertainty. So, your business has the advantage whether it’s ready to lease a new office space and expand and grow, pivot in a new direction, or re-invent itself. One thing for certain is that the negotiating power continues to rest with the tenant.

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