Brexit Triggers Office Oversupply Fears in London
According to sources familiar with the matter, Barclays is planning to sublease its existing offices in the Canary Wharf financial district to the British government. As many as 5,000 desks will be impacted.
As companies downsize, London could be facing a supply glut of office space. This is compounded by the fact that developers ramped up on central London office projects through March of this year, making oversupply a major concern for the UK capital. According to analysts, oversupply is an even bigger threat than Brexit. But a closer examination reveals both might be interrelated.
There’s a lot riding on Britain’s exit from the European Union (EU). What will be the nature of the divorce? Will the UK maintain existing free trade access to the rest of Europe? These questions could determine whether companies stay put in London or relocate out of the country all together. This is especially true for financial service providers, which are impacted by EU financial regulators.
Companies could ship out as many as 100,000 jobs out of London within two years of Article 50 being triggered.1 British Prime Minister Theresa May previously committed to implement the so-called Brexit clause by the end of March. However, her timetable could be compromised after British lawmakers said the Brexit process must be approved by Parliament first.2
Theresa May has stated she is confident of overturning the court ruling. “While others seek to tie our negotiating hands, the government will get on with the job of delivering the decision of the British people,” May said in a statement earlier this month.3
If the British leader gets her way, Brexit worries could soon contribute to London’s supply glut of office space.
“Tenants are getting the upper hand in rental negotiations, with banks optioning space to relocate from London,” Mike Prew of Jefferies Group LLC wrote in a note to clients, as quoted by Bloomberg. “Property yields may give the illusion of looking screamingly cheap, but we have expected rising yields” since August 2015.
Barclays certainly isn’t the only bank cutting office space in London. Citigroup has offered 300,000 square feet of rental space in its Canada Square tower to the UK government. HSBC Holdings Plc also plans to move 1,000 workers to Birmingham, Britain’s second-largest city.4
Barclays’ decision could become commonplace if the UK government pursues a hard Brexit. David Davis, the UK’s recently appointed Brexit secretary, has previously expressed a desire to maintain tariff-free access to the EU.5 However, this could be a tough sell without also extending existing mobility rights.
1. Jack Sidders and Sharon R. Smyth (October 31, 2016). “Barclay’s 25% London Office Space Cut Signals Glut Threat.” Bloomberg.
2. The Associated Press (November 3, 2016). “Brexit divorce trigger must be approved by Parliament, court rules.” CBC.
3. Reuters (November 6, 2016). “Theresa May: Parliament must accept referendum result and deliver Brexit.” The Guardian.
4. Jack Sidders and Sharon R. Smyth (October 31, 2016). “Barclay’s 25% London Office Space Cut Signals Glut Threat.” Bloomberg.
5. David Davis (July 14, 2016). “David Davis: Trade deals. Tax cuts. And taking time before triggering Article 50. A Brexit economic strategy for Britain.’ Conservative Home.
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