Swathes of offices across London could be deserted over the next few years if the UK does not secure access to the Single Market after it leaves the European Union, according to new research.
DealX, an analytics company, estimated 26m square feet of commercial real estate, equivalent to nine per cent of all office space across the capital, could be abandoned by financial, professional services and technology firms as they flee to the continent to maintain a foothold inside the EU.
The financial hubs of the City and Canary Wharf were found to be most susceptible to tenants relocating to the continent. More than 23m square feet – nearly one quarter of the total 102m square feet of commercial property – was said to be at "high degree of vacancy risk".
More than half of London's finance firms which make use of the EU's passporting rights that let them do business across Europe said they would have to relocate at least some of their operations if they could not retain access to the Single Market on similar terms. Technology companies also raised the prospect of moving so they could continue to hire staff from the other 27 EU countries.
Marta Krupinska, co-founder of money transfer firm Azimo told City A.M. she was already in the process of exploring options to leave London. “We’re speaking to Irish regulators and German regulators. We have a plan B should we need it and we can respond very quickly to changing market conditions if access to the Single Market is lost.”
Real estate has been one of the sectors where the effect of last month’s referendum was almost immediately felt, with transactions falling and a number of investment funds closing their doors. However, if the slowdown is contained just to property inside prime central London, analysts said it would not alone be enough to deal a heavy blow to the UK economy.
“It’s important we don’t talk ourselves into a downturn,” said Richard Garner, partner at property consultancy Daniel Watney.
Jonathan Loynes, chief European economist at Capital Economist pointed out property makes up just three per cent of UK assets under management and bank loans on commercial property are at half the level of the financial crisis.
Loynes added: “The commercial property sector has so far been the main focal point of Brexit concerns. But there are reasons to be hopeful that its problems won’t push the broader economy into a deep recession … With the exception of City offices, we don’t actually expect a significant decline in commercial property values.”