London Office Space and the Realities of Brexit
James Hennessy on why demand for office space in London is continuing to defy even the gloomiest Brexit predictions.
Despite a slew of warnings from multinationals about the future of their UK operations, post-Brexit, demand for commercial office space in London is increasing.
As the executive director and head of Savills central London office agency team, Phillip Pearce observes, "both the City and West End continue to defy the sceptics, with strong demand from a good cross-section of tenants for space in Central London."
Certainly, a climate of political and economic uncertainty is delaying office planning and relocation decisions, and also placing decisions about hiring and staffing on hold, for now.
On the other hand, demand for space with shorter leases and serviced offices has never been greater and is, arguably, less to do with Brexit than with the reality that serviced offices, in particular, allow larger companies to lower their capital expenditure (CAPEX) on leased offices and channel savings into operations.
Many businesses have already drawn up Brexit contingency pans and will already have factored in potential post-Brexit risks to their operations - which may well explain additional reports of positive trends in terms of office space, and a recent comment by Alice Mitchell, head of corporate communications for Knight Frank, that ", “London continues to defy Brexit and remains a resilient office market”.
The UK government has also increased investment in infrastructure in fringe areas bordering The City of London (the capital's financial district), and particularly the formerly run-down areas of Hackney and Stratford, in anticipation of growing future demand for property.
And, according to media reports in November 2018, even the European Union is planning to open a new embassy in the capital with 29 staff, post any Brexit.
Regardless, entrepreneurs will continue to establish, grow and even fail in business; as they have done from time immemorial - with the quality of business support and services usually being a bigger consideration than their location.
As a truly global city and the largest in Western Europe, London will continue to be a magnet for new businesses for the foreseeable future - in much the same way as the United Kingdom will continue to attract investment as a result of its highly skilled workforce, government that is supportive of entrepreneurship, relatively low taxation regime, and minimal "red tape" and business incorporation costs.
Regardless of Brexit, the capital city will also continue to be the European regional leader in several areas of business - including financial services, pharmaceuticals, FinTech and PropTech (which may well explain why it has been branded the UK's "Silicon Valley" by ChannelWeb).
London has also been a pioneer in adding value to commercial property by developing WX (Workplace Experience) and TX (Tenant Experience) technologies which Simon Davis, executive managing director of Newmark Knight Frank, says are "changing our daily lives."
Although a handful of well-known British brands have relocated assets or their headquarters oversees, including appliance manufacturer, Dyson, which is re-domiciling to Singapore, and Barclays Bank which is moving €190 billion of assets to its Irish subsidiary, more often than not, decisions of this type are motivated by incentives offered by other countries and internal reasons. Indeed, other major brands - including global asset manager, Blackrock, continue to reaffirm their commitment to remaining in the UK.
Even forecasts by the Institute of Directors (IoD) that one in three businesses are planning to move abroad need to be considered properly, as the reality is many more will continue to trade in the UK.
No matter what happens post-Brexit, it is highly likely London's size, reputation and status as a major global city will continue to sustain it as they have for several hundred years.