London office market strong in uncertain time for commercial property market in UK

Taylor Scott International News

Commercial property rental values grew by 0.1% across the UK in May, slightly down on 0.2% per month for the last three months, according to the latest index. Capital values grew by 0.2%, continuing the growth trend seen since the start of the year, the data from the CBRE monthly index also shows. Rental growth in May was weighed down by West End and Midtown offices and these two submarkets recorded rental value growth of 0.1%, their weakest since October 2013, leading Central London offices rental values to their weakest growth of 0.2% since June 2013. Although some parts of London demonstrated flat or slightly negative performance, parts of the capital performed well, such as the City, where office rental values grew by 0.6% last month, compared to just 0.1% in both March and April. Meanwhile capital values across the UK grew by 0.2% in May, in line with the level of growth seen throughout the year, with the exception of March when values were hit by the one-off impact of stamp duty tax changes. Total returns followed the same pattern as capital values, demonstrating a steady growth of 0.6%, maintaining the level seen since January. ‘Commercial rents and capital values continue to grow in a period of great uncertainty. The London office market has seen some volatility, but the fundamentals of the market are strong,’ said Miles Gibson, head of UK research at CBRE UK. ‘This time next month, we’ll have a clearer idea of the direction capital values and rents will go in the second half of the year, and a flavour of the pace at which they will get there,’ he added. Meanwhile, 2015 saw a marked increase in banking and finance leasing activity in Central London according to another report from CBRE which says that a relentless drive to cut costs has forced financial services occupiers to focus on reducing real estate costs and adopting strategies to occupy their space more efficiently. Using a combination of offshoring and nearshoring, there has been an ongoing move by big banks to relocate non-core functions outside of Central London, as seen in HSBC’s decision to move 1,000 head office staff from London to Birmingham, the report points out. Indeed, financial services firms are also turning to outsourcing. Areas such as risk management, trade reporting, compliance and IT are increasingly being outsourced. Last year alone, Bank of America Merrill Lynch, Citigroup, Commerzbank, JPMorgan, Société Générale and Standard Chartered joined forces last year with Swift to develop and use a centralised due-diligence system. However despite the inherent challenges, banks continue to cite client needs, recruitment, profile and presence as key reasons to keep office space in London. This is reflected in last year’s leasing figures with banking and finance occupiers leasing 3.2 million square feet, some 4.9% above the 10 year average. There are a variety of compromises companies may make as part of… Taylor Scott International

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