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Brexit Slowing London Office Market

A five year outlook report has been published by Fidelity International and suggests that Brexit has slowed the London office market to the point of it becoming subdued. Recovery is not anticipated until 2020 which means the office market within the capital will struggle for growth – price declines are expected in the City, West End, Mid Town and Central Fringe throughout the year.

With Brexit proceedings officially underway; the market could become fairly volatile in terms of pricing over the coming months. Economic slowdown, increased supply of development and weaker demand from occupiers will no doubt throw the pricing structure out and skew valuations for some time.

The Brexit decision has proven to be a useful scapegoat when trying to explain factors affecting the property market at present but it would appear, according to the report, that the decision is not entirely to blame as recovery isn’t expected until 2020 – some two years after the UK is expected to formally leave the EU.

Instead, rental values are expected to fall this year as demand from occupiers continues to weaken and the supply of property increases; especially in the City itself. It is believed that these property fundamentals are the main driving force behind the projected declines rather than the shift that has been caused by the Brexit decision.

A period of oversupply is expected over the next 18 months for the City office market and it has been highlighted as an area that will be particularly vulnerable.

However, the forthcoming five years should see the London office markets develop in line with the rest of the UK on the whole – the West End and Mid Town areas are expected to improve at a greater rate than the UK average during the period.

The Brexit decision has no doubt accelerated the concerns over the London office market but it cannot be held as the prime factor. The market itself has been slowing since 2015 and it is imperative that this detail isn’t overlooked in favour of simply blanketing the issue with Brexit as the core reason.

The decision has added volatility to the market and added another factor to be taken into account but the full extent of the impact is not yet clear. It is anticipated to have further negative effects on valuations and demand but it would be unwise to judge the extent of the impact at this stage – the UK is set to move into a new phase of the property cycle in 2017 which may create a clearer picture.

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