One of the more alarming projections was that 100,000 financial jobs would disappear from London as all the banks moved into mainland Europe in order to protect their passporting rights. It followed that investment in the UK would also suffer as potential buyers sat on their hands, awaiting the outcome of negotiations, or simply decided not to invest in London at all.
However, all of this has been exposed as mere hype, because according to the Organisation for Economic Co-operation and Development (OECD), foreign direct investment inflows into the UK rose by 20 per cent in 2016 from a year earlier to £197bn, the highest level of recorded inflows since 2005. It might be argued that this is just a consequence of sterling’s weakness, but investment decisions are made on more than just a whim associated with exchange rates, and are generally long-term in nature. There is never a rush to dive into a South American country with a weak exchange rate; the decision to invest is made on the quality of the asset. This is borne out by the fact that net purchases by overseas investors held steady in August, even though sterling had recovered most of the ground lost to the dollar in the aftermath of the referendum.
Banking and investment specialist Turnerlittle.com has taken analysis of this level of investment one stage further with a projection that suggests the 2016-17 level of investment will create more than 75,000 new jobs, primarily in business and consumer services, software and computer services and the financial sector.
All this comes at a time when UK employment data showed the biggest rise in the three months to July since December 2015. Crucially, a majority of the 182,000 jobs created in those three months are full-time positions, which has to be supportive for rents with rising occupier demand.
This fits in nicely with the findings of a CBI/CBRE business survey that showed that 65 per cent of those taking part believe that the technology and creative sectors will provide the principle areas of economic growth over the next five years. More importantly, over 90 per cent of those taking part in the survey still rate London as a good place to do business.
However, most London businesses employ people from the EU, and a quarter have indicated that they could move part of their operation out of the UK should there be restrictions imposed on EU residents working in London. Of course, these projections themselves are based on little more than the uncertainty generated by what so far seems to be a rather muddled negotiating process, with the media having a field day reporting on negotiators hurling insults at each other. That’s not good for someone planning investment decisions for the next five years.
But despite the uncertainty, getting on for two-thirds of businesses surveyed by CBRE plan to maintain their current investment plans, and around the same number said they were planning to expand their organisation over the next 12 months, primarily in London. It’s also interesting to note that while 23 per cent of London businesses plan to make redundancies, 39 per cent intend to increase their headcount. And most businesses also believe that there will be a sufficient supply of skilled people to meet their needs over the next five years, and enough people to also fill lower skilled jobs.
But while the underlying picture for central London shows a narrowing gap between take-up and the availability of office space, the mood in the West End is somewhat different. According to CBRE, prime office rents there have fallen for three consecutive quarters and are now down about 12 per cent, whereas rents in the City of London, with its greater exposure to the financial sector, have fallen just 1 per cent. But there is a puzzle here because falling rents would suggest a rising vacancy rate but the latter has not moved up enough to justify the fall. This may suggest that the drop in rents has been overdone – which means more good news could be on the way for property owners as those rents normalise.
Jonas Crosland is Investors Chronicle's property correspondent
