London's office market will change more in the next five years than in the 15 years since the 2001 dot-com crash, as a combination of factors much bigger than Britain’s exit from the EU come into play across the capital.
While there has been so much discussion on the future of London’s banking cluster since the referendum, this ignores the revolution in the capital’s economy that has begun in recent years.
When I began my career in the City in 1989, the sandwich bars and pubs around Cannon Street were awash with the multi-coloured jackets of LIFFE’s traders. By the time Britain leaves the EU, the bearded hipster staff of Deliveroo and Bloomberg will dominate the sushi bars in that part of the Square Mile.
This replicates what we have seen in San Francisco and New York where the tech firms have broken out of the South Manhattan – or SOMA – and Meat Packing districts respectively, and invaded the neighbouring financial districts in search of office space.
The tech and creative revolution they represent has only just begun. If you have a child aged under five, they will never learn to drive. By the time that generation starts work in London, they will use their smartphones to summon up self-driving Uber vehicles, which will navigate via an algorithm, written by someone in a tech startup which is currently in a WeWork. By that time, their offices will probably be in Nine Elms or Canada Water.
So as Britain prepares to invoke Article 50, landlords are becoming nervous, but they should ignore the short-term Brexit noise, and focus on these super trends. In the last five years, office take-up in Central London has been 55 per cent higher for TMT firms than finance. That trend is not going to reverse itself. It is set to flower, and change the office environment beyond recognition.
My view is that the effect of the referendum over the next 18 months to two years may be a softening in the market which will show itself in landlords providing greater lease flexibility and tenant incentives rather than a significant fall in rents.
But at the same time, property occupiers in Central London need to be wary of delaying a decision to move for too long. If their lease events are in 2018, 2019 or 2020, there is a danger that they will be trying to move at a time when the supply of offices, even with current subdued demand, is becoming very tight.
This is because some developers will inevitably in the next year decide to delay building new offices with uncertainty continuing to surround the City’s role in Europe, creating a limited supply of new buildings as companies begin to regain confidence, as they inevitably will, if the economic landscape becomes clearer.
But while the fallout from the referendum will affect companies looking to move within London in the short term, my view is that there are far bigger issues at play.
The rise in co-working, driven by the likes of WeWork, The Office Group, Neuehouse and Second Home, is a huge factor, with some of the world’s biggest companies now using this sector to rapidly expand and contract in key locations.
We will see much more of this type of office space in London in the future as it becomes an essential part of an occupier’s criteria when choosing a location or even an office building, and the UK’s biggest property companies are likely to compete by offering their own solutions.
Next, Crossrail will have a further dramatic impact on London’s workplaces when it opens in 2018.
Crossrail – or the Elizabeth Line – is already re-shaping London. I expect to see the triangle created by Farringdon, Old Street and Aldgate becoming a nexus where the tech and financial worlds merge, completely changing the City as this traditional office core knits in overtime with the new generation businesses.
The third big change I foresee is a further shift to the East as demographics and costs continue to make West London and the West End an expensive place to live and work.
In 1991, London’s population was 6.9m. By 2001, it had grown to 7.2m, and by 2011 to 8.2m. The capital’s population is now 8.6m, with the London Plan predicting the capital will grow by 100,000 people a year for the next 10 years.
According to Oxford Economics, the knock-on effect is that 200,000 new office jobs are due to be created in the next five years, needing another 20m square feet of office space.
With employment, land and housing still much cheaper in East London than West, this inevitably means further growth for locations east of Tower Bridge, capitalising on the rapid rise of Canary Wharf, Stratford and North Greenwich.
Read more: The remarkable rise of east London
Demographic growth means that the City and West End will continue to prosper, but the independence of the world’s biggest tech companies mean other locations will grow as well.
Apple’s move to Battersea Power Station, Google’s decision to go to Kings Cross, and Facebook’s relocation to new offices near Tottenham Court Road show how London is changing shape, driven by the disruptors who see us as a global hub and who have little respect for the traditional core locations.
Brexit or not, the London office market is undergoing fundamental changes that will re-shape the whole capital over the next five years.