Central London office occupiers are vacating space at a record rate, according to analysis by Seaforth Land that suggests the cost of Brexit on the market has run to 6.2m sq ft so far.
Using leasing data published by CBRE, London investor Seaforth Land said that by ignoring vacated space strong take-up figures were painting a “misleading” picture of the state of the market.
It found that occupiers were vacating the greatest amount of office space in 15 years, which meant that despite take-up reaching 12.1m sq ft in 2016, tenants vacated 3m sq ft more space than they moved into.
The pattern has continued this year with tenants vacating 800,000 sq ft more space than they moved into in the first half of the year.
Seaforth Land said this figure – called net stock absorption (NSA) – provided a more meaningful account of occupier demand especially in today’s market when the gap between NSA and take-up is so large.
It also estimated that the cost of Brexit on the London office market had run to 6.2m sq ft, which was calculated by factoring in what would have happened had the UK voted to stay in the EU. It estimated that NSA would have been positive 2.4m sq ft which when added to the actual NSA figures gives 6.2m sq ft.
Simon Durkin, director of strategy, research and operations at Seaforth Land, said it was difficult to forecast how demand would evolve from here because occupiers may simply be waiting for more clarity around Brexit negotiations.
“Firstly, demand may simply be ‘parked at the door’ as businesses avoid or defer leasing decisions whilst monitoring Brexit negotiations,” said Durkin, who was previously head of UK research at BNP Paribas Real Estate.
“Secondly, a portion of demand will simply ‘wilt on the vine’ as businesses become more efficient, require less space, and/or operate at a higher employment density. Continued uncertainty created by the lack of progress in the Brexit negotiations may result in a more severe scenario where a portion of demand simply moves away from the UK and is lost to other European cities. As a result, NSA is forecast to stay lower for longer.”