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More signs that Brexit is beginning to bite as London office values fall

Following on from today’s news that the output of London’s businesses contracted dramatically in July, now a key property index in the capital has highlighted potential jitters currently working their way through the city’s office market following June’s referendum results.

According to CBRE’s monthly survey of the Central London property market, capital values across London’s offices, retail properties and industrial sites all showed marked declines in average values last month as the ripples of uncertainty were felt across the market.

In particular, the City of London’s office market, which is dominated by financial services firms, saw capital values shrink by 6.1% last month amid fears that the sector would be denied access to the EU’s single market following Brexit.

This contributed to an overall 4.1% drop in value across the whole of Central London’s office sector, serving to pull year-on-year growth down to a measly 0.4%.

Capital values in retail property also fell by 3.6%, while industrial property fared slightly better with only a 2.2% fall for the month, which the property firm attributed to a lack of supply to meet strong demand.

Miles Gibson, Head of UK Research at CBRE commented that while the fall was widely expected, and that global economic uncertainty had played a role in last month’s stutter, Brexit was still a key factor in the figures.

He said: “Capital value growth was always expected to falter at some point during 2016, as global economic uncertainty cast doubt on the likelihood of the strong growth seen in previous years persisting for much longer.

“The Brexit vote has now crystallised that expectation, though it is not the only driver of it.”

In slightly more heartening news, CBRE’s figures showed that rental value remained more resilient, falling from 0.2% growth in June to zero last month and held steady across Centra London office and retail sectors.

With rental values in mind, Miles added: “It’s reassuring to see rental values have held firm in the face of this heightened uncertainty, a positive sign that the UK occupier market remains strong, sustained by record levels of employment, and low borrowing costs.

“It will be some time until we understand the full impact of the Brexit decision, but the Bank of England’s base rate cut and more quantitative easing are likely to be supplemented by a similarly supportive fiscal stance in the autumn.”

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