Home Commercial Property Why London office markets will dip this year

Why London office markets will dip this year

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26th May 17 9:03 am

New data reveals all

Boosted confidence in the political landscape has prompted an uptick in rental expectations for the European office market, according to a leading industry survey.

The Investment Property Forum’s European Consensus Forecast now projects that average office rents across key European markets will increase by 1.8 per cent annually in the next three years, up 0.2 per cent on the previous forecast in November.

All but three of the 30 markets in the survey are projected to see growth over the next three years, with the exception of Warsaw and the London West End and City markets. Growth rates are expected to see decreases year-on-year in two-thirds of the markets surveyed, though steady growth is still projected.

The biggest increases are largely expected in markets hit hardest by the sovereign debt crisis at the beginning of this decade, with markets such as Madrid, Lisbon and Barcelona seeing increased growth expectations for 2017 of over 100 basis points compared with November. 

The three-year averages for the London markets are particularly influenced by projected strong declines in rents in the next two years, with the West End expected to see a decline of 4.5 per cent for 2017 followed by a 2018 decline of 2.6 per cent, and the City expected to see a decline of 3.8 per cent for 2017 followed by a 2018 decline of 3.7 per cent – sharply down on the expected one per cent fall projected for 2018 in November.

However longer-term forecasts for the London markets are slightly rosier, with the West End market is projected to return to positive growth in 2019. Importantly, though five-year average growth is effectively static for both the West End and City markets, projections have been revised upwards from November when they were projected to see 0.8 per cent and 0.5 per cent average declines respectively.

The estimates correspond with IPF predictions in February’s UK Consensus Forecast that the London office market will return to positive rental growth by 2020. 

Lee Sheldon, partner at law firm Addleshaw Goddard, which supported the research, said: “Contrary to the shadow many expected Brexit to cast across the wider European market, the positive sentiments in this survey reflect the resilience the European office market is exhibiting. When taken alongside the election of President Macron in France and likely continuity in the Dutch government, stability is likely to be the order of the day, and major central business district office transactions such as those seen in recent months look set to continue.” 

Richard Garner, head of the commercial agency at property consultancy Daniel Watney, said: “While the projection for London’s office market isn’t hugely positive, it is important to bear in mind that the market is highly subject to the nature of the UK’s Brexit deal. If a deal is secured which avoids EU consumers from paying extra to access UK financial services, London’s appeal as one of the world’s best places to live and work could preserve confidence in the City’s office market.”

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