Now well into 2016, can we expect the global flexible workspace market to continue its strong 2015 momentum? Keeping a close eye on the global economy, Philip Grace, founder of i2 Office and an expert on the flexible office market, believes 2016 may have some shocks in store for the serviced office industry.
I have a bearish opinion about the global economy. London is the capital of Europe and the world’s second financial city; yet what happens globally will impact upon demand for offices, flexible space and serviced offices in the city.
Financial liquidity could dry up in the market, caused, in part, by the low oil price (will it hit $10 a barrel?)
China’s economic slowdown
China is slowing with only 6.9% growth during 2015 and some forecasters are saying 6% in 2016. We have also seen how the world stock markets react to China catching a cold and adjustment globally.
Currently, China has circa £1billion of real estate transactions pending in the UK. There would appear to be a rush for Chinese companies to move into sterling, anticipating that the UK will be the stronger currency over the Yuan as China continues to slow.
Property yields could be impacted if there are fewer buyers in the future with the cash to purchase London real estate. Saudi Arabia and, more generally, the Middle East, might reduce their spending to mirror the impact of oil on their GDP.
Russia saw their economy shrink by 3.7% in 2015, the worst for six years. Banks are starting to deliver debt and low interest rates will help in the UK, but will the Fed increase US rates and slow the recovery of the economy in the States? The banks do have some exposure to debt in the oil industry, but how will that develop if the oil price continues to reduce in value and oil companies start to default on their loans?
We have also seen a steep rise in UK FTSE profit warnings. If we do go into recession, will funding still be available as demand for offices reduces? And, of course, the American elections, will it be Trump or Clinton? Both of these events could cause economic disruption. It would be wrong to assume that 2016 will be business as usual on the back of a prosperous 2015.
UK referendum on Europe
The UK serviced office industry saw some clients putting off decisions prior to the General Election last year, with fewer companies prepared to commit to space in March and April 2015.
Once the UK referendum on Europe is announced, international conglomerates could just ‘wait and see’ before coming to London. If the referendum is announced in February, as currently reported, how will that impact upon the market leading up to a September 2016 referendum?
Challenger European cities could also seize the opportunity to encourage companies to choose Paris or Berlin over London.
If the decision is ‘out’, London will survive, but the disruption whilst the UK exits Europe will last years. How will that affect the status of London as the second global financial city, behind New York?
Any of these events could cause economic disruption. What happens globally will impact upon demand for offices, flexible space and serviced offices in London.
I say again, it would be wrong to assume that 2016 will be business as usual on the back of a prosperous 2015.
I think it’s going to be a tough year. But I strongly believe in the sustainability of the industry and 2016 will also be a year of great opportunities and strong serviced office demand.
