The future of London's occupier markets has been coming under scrutiny at Expo Real, with some investors concerned that city offices will lose key clients in the wake of the UK referendum.
But according to Marcus Cieleback, head of research at Patrizia Immobilien, the so-called Brexodus – an exodus of leading financial organisations after the UK leaves the EU - is unlikely to ever happen.
'We saw the market softening to some extent before the Brexit referendum, which is not surprising given the banking situation in Europe,' Cieleback told delegates at an Investment Locations event focusing on the UK.
'However, those cities which were betting on benefiting from Brexit – Paris, Frankfurt, Dublin and Amsterdam – are probably going to be disappointed as to how many companies actually leave. Most businesses are going to want to maintain the economies of scale that they've already achieved in London,' he added.
Mahdi Mokrane, head of research and strategy for Europe, LaSalle Investment Management, was less optimistic. 'We are worried about the occupier market,' he confessed. 'However, so far, we haven’t been affected. We manage 2 million ft2 (186,000 m2) in central London, but we've only had one leasing deal fall through since the UK referendum. One thing that is happening however is that tenants are asking for more flexibility in leases, and requesting the possibility to exit in the next two years – just in case a hard Brexit does occur.'
Jeremy Plummer, head of EMEA & CEO CBRE Global Investment Partners, saw the situation as more complex. 'In the short term, we're seeing an impact both in occupier markets and in valuations,' Plummer noted. 'At the end of Q2 this year, valuers stalled on valuing properties, but interim disposals meant that by the end of Q3 they felt able to sign valuations again. The impact on prices has been quite broad, however, with a range of issues – from lease lengths, to location and property types - all creating different effects. For example, offices with short leases are probably being hit the most, while prices are actually hardening for warehouses with long-term occupier deals. The share price for Segro has gone up since Brexit, while values are flatter for businesses like Land Securities.
'The long term view is a lot more uncertain,' Plummer concluded. 'There is a view that banks were already thinking about relocating certain functions out of very expensive central London office locations, and Brexit is going to accelerate that. We will see functions move out of London, and they won’t wait for this very lengthily political process to be completed - they’ll just get on with it,' he warned.
