LONDON • Modern office buildings are all the rage in central London, with a swathe of companies, including UBS Group, moving into new premises in the last 12 months.
The problem for landlords is finding someone to replace them.
A growing number of unoccupied older properties caused the overall office vacancy rate to climb to 5.8 per cent at the end of the first quarter from 3.9 per cent a year earlier, according to data compiled by Deloitte. That was the biggest increase since 2009.
"The demand for new space is still there; the demand for second-hand space isn't necessarily as hot," said Mr Shaun Dawson, a research manager at the firm.
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Investors pulled back from London real estate immediately after last year's Brexit vote, fearing that the United Kingdom's departure from the European Union would cause a collapse in demand for office space. While high-profile lease agreements by companies including Apple and Deutsche Bank have helped to ease concerns since the June 23 vote, the latest data from Deloitte show there are limits to the market's recovery.
The amount of office space available for rent climbed 36 per cent last year and by a further 19 per cent in the first quarter, Deloitte said in a report published yesterday . That is almost entirely made up of space that has become available as a result of companies downsizing or moving offices, the data show.
UBS, for example, completed a large office move last year, vacating several older buildings in favour of a single new London headquarters.
Overall office vacancy rate at the end of the first quarter, according to data compiled by Deloitte.
The amount of office space under construction in central London fell 6 per cent to 13.1 million square feet in the six months to March, the first drop recorded by the biannual survey since September 2014. "We have started to see developers hold off," Mr Dawson said, citing increasing construction costs and weaker demand because of political uncertainty. "We are feeling that post- Brexit blip."
British Land, the UK's second-largest real estate investment trust, committed to redeveloping 100 Liverpool Street before it had secured a tenant after the building's main occupier, UBS, vacated the property at the end of last year.
"There is going to be uncertainty ahead and it's going to be very hard to call," chief executive officer Chris Grigg said on Bloomberg TV when asked about Brexit. "There's going to be continued polarisation: If you've got something that is average, I think you're going to struggle."
British Land published its full-year earnings yesterday. The landlord fell as much as 2.5 per cent, the most since March 30, in London trading.