Optimism builds as London office developers tune out Brexit

Bloomberg

For London office developers at least, the Brexit waiting game is over. Developers mostly steered clear of doing new projects on spec in the political upheaval that followed the UK’s 2016 vote to leave the European Union. Now the surprising resilience of London’s office market, highlighted by technology giants like Alphabet Inc. committing to open new bases in the city, has convinced them that it’s time to break ground.
You don’t have to look hard for evidence of this resurgence. Behind that famous wall of digital billboards on Piccadilly Circus, Land Securities Group Plc is redeveloping the building at
1 Sherwood Street.
It’s the first time in about five years that the company has started a project without lining up tenants in advance.
“London’s office market remains resilient in the face of uncertainty as we witness an encouraging increase in new construction starts,” said Mike Cracknell, a director at Deloitte Real Estate. “This is testament to developers’ continued confidence in London’s office leasing market long term.”
Demand for offices in the skyscrapers of London’s financial district and the grand squares of the West End has defied expectations of a crash since the Brexit referendum, even as the capital’s housing market has been weighed down by the political malaise. And after several years of restrained building, that demand has spurred developers into action despite chronic uncertainty about the final terms of Britain’s divorce from the EU.
Private equity funds, UK real estate investment trusts and overseas developers are snapping up vacant buildings and starting new projects. British Land Co. has submitted plans for its largest-ever development in London’s Southwark borough, and will decide before the Halloween Brexit deadline whether to start a large office project in the Shoreditch area without first signing up tenants.
“Across the business we have leased more space this year than in any of the last five years,” said Simon Carter, British Land’s chief financial officer. “We have benefited from the fact that supply has been pushed back but demand has remained good.”
Other firms catching the wave include asset manager PGIM and developer Allied London, which are in talks to buy ITV Plc’s former television studio complex on the south bank of the River Thames, according to people with knowledge of the matter. The site has approvals for a 31-story tower including apartments, offices and studios, they said. And Great Portland Estates Plc is in negotiations to buy BT Group Plc’s headquarters next to St. Paul’s Cathedral, and plans to redevelop the site, said people familiar with the situation.