NEW YORK CITY-While competitors on a global scale, London and New York’s commercial real estate markets share a similar economic driver: media and technology. As Manhattan continues to emerge as the Silicon Valley of the East, London is also diversifying its tenant base, seeing a rise in activity from non-financial services tenants in the wake of the Eurozone crisis, Digby Flower, partner and head of London markets at Cushman & Wakefield, explains to GlobeSt.com.
“The London market, post-Lehman and the credit crunch, bounced back quickly, and 2010 was really a record year in terms of take-up,” he says during a visit to C&W’s Manhattan offices on Sept. 10. “But that very quickly switched off as we came into 2011 with the Eurozone crisis, so the market has become a lot more subdued since then.”
As a result of the economic downturn, Flower said the characteristic of the market has changed. In 2010, he said 50% of take-up in the London market – roughly 5.5 million square feet – was from banks and financial institutions. During that time, JP Morgan took one of the largest deals in town, leasing one million square feet in Canary Wharf, the former London headquarters of Lehman Bros. after the fall of the financial giant. But in 2011, Flower said the biggest transaction was less than 30,000 square feet.
“The banking sector was hit very hard hit by the uncertainty from the debt crisis and by the regulation issues, some of which have been here and some of which have been in Europe,” he says. It’s now the media and tech side that have come back.”
Historically, about 15% of the London market demand has been dominated by media and tech, but today, that number has skyrocketed to 38%, Flower said. For example, Google has taken a 10-year lease in Britain’s Tech City section in East London and online retailer Amazon.com opened a 47,000-square-foot central London office near the city’s “Silicon roundabout” – a submarket akin to Manhattan’s Midtown South.
At the same time, the 2012 Olympic Games helped revitalize interest in the city, and financial service tenants are beginning to come out of the woodwork. Aon, the UK’s largest insurance brokerage company, leased 191,000 square feet in British Land’s Leadenhall Building, also known as the ‘Cheesegrater’ by locals. In addition, insurance firm Markel negotiated a 51,000-square-foot lease at 20 Fenchurch St. And as of Sept. 5, US insurance firm W.R. Berkley is planning to construct a state-of-the-art 40-story skyscraper in London’s main financial district.
Flower said while take-up is still 25% down from 2011, there are more deals in hand. “By year end, I don’t think we will end up 25% under,” he said.
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