London property prices provide a guide to financial pulse of 'the City'
Known for centuries as "the City", London's financial centre has expanded beyond its original heartland in the City of London to the skyscrapers of Canary Wharf in the east and plush townhouses in Mayfair to the west. But Britain's impending European Union exit has raised fears of an exodus of thousands of financial sector jobs, with an immediate impact on its property market.
Commercial property prices show prices have dropped more since the Brexit than at any point since the global financial crisis.
Vacancy rates have edged up, but not by much. However, Mat Oakley, head of European commercial research at Savills, says London's broader real estate story is "surprisingly positive", despite some selling soon after the Brexit vote in 2016.
Q: Since the vote, what changes have you seen?
A: I think there was an immediate overreaction. The quarter immediately after the vote, there was a bit of panic selling out of the UK retail property funds - those private investors can invest into. A couple of people got some fabulous bargains as a result of that. Then I think reality set in. And the longer that this process is drawn out ... the easier it is for businesses in the property sector to make plans around it.
... We're already talking to tenants that are committing to London for the early 2020s, and the most notable deal ... is Deutsche Bank committing to their new headquarters in the City, which they won't move into until 2023.
Q: Has the mood changed?
A: It's volatile, I think. There is definitely a divide down the middle between the bulls and the bears. I would say domestic investors in particular are more pessimistic about the future than non-domestic investors. But non-domestic investors have ruled the roost in the London market - more than 80pc of investment so far this year has been from non-domestic buyers. I think they just view this as a murky little domestic political problem, and maybe we're over-worrying, maybe the Brits are over-worrying about our problems close to home.
Q: Do you think anyone's holding back at all, until a few years down the line?
A: No, what we're actually hearing from businesses is that they've got to carry on making decisions, keeping their staff happy, making sure their workplaces are up to standard.
They've spent a lot of money on contingency plans with high-paid consultants, and then they're going to get them out of the cupboard we suspect around or just after the date of real Brexit and say 'Has our operating margin really changed in London - do we need to move?'
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Q: Are you optimistic?
A: I'm optimistic for the short term - I think it would be very odd to say 'Everything's going to be fine'. I think the down-side risks in terms of talk of 100-200,000 jobs lost in London as a result of (Brexit) are completely unjustifiable. We think there will be some modest job losses over a five-10 year period.
Q: We're standing in Canary Wharf now, which seems to have fared incredibly well. Why do you think that is?
A: Again I think it is just a reflection of, you know, businesses have to plan for the long (term) - the typical property lease in the commercial property market is 10 years and you can't really make snap decisions.
Nobody wants to be the person that pushes the button on a big move to Frankfurt or elsewhere and then discovers they didn't need to. So I think there's a lot of planning going on, and also the occupier base down here has diversified - it's no longer just about finance... (Reuters)