Real Estate

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

Brexit is rattling London's commercial real-estate industry. A vote to leave the European Union would threaten the 714,000 jobs in the capital's financial and related industries as well as its thriving office market -- where new construction projects are at record highs and rents have never been higher.

Shares of London-focused property firms such as Derwent, Workspace and Great Portland Estates have fallen year-to-date, under-performing the broader U.K. benchmark.

Office Spaced
London-focused property stocks have underperformed as Brexit fears rattle markets
Source: Bloomberg

Yet as much of a threat to the financial industry as Brexit may be, it's the boom in the technology industry -- and the risk of a bust -- that London and its landlords need be more worried about.

Since the financial crisis, companies like Facebook, Apple and Amazon have expanded their London empires while banks have retrenched. Tech and media companies accounted for around 31.0 million square feet of total office space in London last year -- not far off from the 48.5 million square feet held by financial-sector tenants, according to realtor Colliers. Back in 2008, the difference was much more pronounced: tech's footprint was about 25.5 million square feet and finance 52.8 million.

London Coding
The tech sector's office footprint has grown since 2008, while the financial industry's has fallen
Source: Colliers

Rents have been pushed up as a result -- to the point where a trendy Shoreditch warehouse can cost almost as much as posh digs near the Bank of England. Office space in the heart of the City of London costs around 70 pounds per square foot today compared with 66.50 pounds in Shoreditch, according to Knight Frank. In 2007, the figure for the City was 63.50 pounds and Shoreditch 47.5 pounds. 

Closing The Gap
Office rents in the heart of the City of London and on tech-friendly "fringes" are converging
Source: Savills

So if London property has had a good crisis, it has the technology sector to thank, even if banks still have more floor space.

Developments such as Google's European headquarters in King's Cross -- complete with napping pods and a YouTube Walk of Fame -- or Facebook's campus in Euston bear the hallmarks of a sector in growth mode, hoovering up more space. Banks, by contrast, are being more cost-conscious as they reshuffle office space or -- like Barclays -- sub-lease space to other tenants.

And with HSBC already moving staff to Birmingham and Credit Suisse aiming to cut thousands of jobs, the financial industry's dominance in London may be cracking. And Brexit would certainly hurt demand for office space. JPMorgan has warned a vote to leave could lead it to cut jobs and there's a chance other U.S. investment banks would follow suit. A chaotic exit from the EU would also make London and the U.K. less attractive for other industries as well.

Neck And Neck
Leased office space under construction in London by sector for the six months to end-March 2016
Source: Deloitte

But it's the hipsters, not the bankers in pinstripes, developers need to be concerned about. There are signs the white-hot tech boom is petering out -- in the U.S., no tech firm has raised more than $100 million in an IPO this year -- something my Gadfly colleague Shira Ovide noted last month.

If that tech boom turns to bust, London's property market will have more to worry about than Brexit.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net