New figures have shown property expert Simon Morris that the financial services sector dominated the take-up of London office space in the first half of 2015.
Global Financial Centre
The UK’s capital city is a major hub for the international finance industry. This was confirmed by the 2015 Global Financial Centres Index, which is conducted by think tank Z/Yen. This survey assesses 98 business districts on a number of criteria, such as the quality of a city’s financial sector development, to determine the most important financial centres on the planet.
City A.M. reported that London topped the Global Financial Index in 2015 ahead of New York, which did so in 2014. The think tank explained: “London climbed 12 points in the ratings to lead New York by eight points. The Global Financial Centres Index is on a scale of 1,000 points and we believe that a lead of fewer than 20 points indicates relative parity. London and New York are often as much complementary as competitive.”
Impact on London office sector
The strength of London’s financial services sector has had a profound impact on the UK capital’s office market, according to the Financial Times. Research from real estate firm Cushman & Wakefield suggested that financial services businesses increased the amount of office space they occupy in the UK capital by 85% in the first six months of 2015.
Elaine Rossall, head of central London research at Cushman & Wakefield, explained that “everyone talks about banks downsizing, but that’s only one part of the market… we’re seeing other financial sectors expanding their space, while banks are restructuring.” In absolute terms, the financial services sector’s office take-up expanded at a faster rate than even media and technology firms, who saw their office take-up rates rise by 97% in the first half of this year.
Rossall added that office rents in prime central London, where the city’s financial district is located, have now exceeded pre-crisis highs. Office rents in the district have increased by 10% in the past year, to reach £66.50 per square foot.
Cushman & Wakefield also revealed that over two million square feet of additional office space is expected to become available by the close of 2017. However Rossall explained that much of this was pre-let, so it wouldn’t do much to ease supply constraints in the district. Therefore the property adviser expects strong demand to keep pushing prime central London office rents up in 2016.
Central London office space
The growth of London-based financial services firms shows no sign of slowing down; companies that were already in the district increased floor space by 56% (to 5.3 million square feet) in the opening six months of this year. The UK capital’s designation as the top Global Financial Centre on the planet should ensure that financial services businesses keep renting London office space as we move into 2016. In turn this demand could reduce supply and push office rents up further throughout the year.