London Office Prices Expected To Fall By 3.1% In Q1 2023

UNITED KINGDOM – A poll of 400 real estate agents show that the per sq ft (psf) capital values of commercial properties across the country could drop by an average of 2.9 percent during the 1st quarter of the year, according to a recent report from The Financial Times.

The “decidedly negative” forecast would mean “values and rents” of commercial properties, particularly office assets, could “tumble off a cliff edge”, and it could be the sharpest quarter-on-quarter decline over the past five years, stated property agency Robert Irving Burns.

Antony Antoniou, a Managing Director at Robert Irving Burns, explained that the dismal outlook is due to a combination of factors including interest rate hikes and the adverse effect of Liz Truss’s disastrous ‘mini’ Budget, which halted deals and resulted in a lending pullback.

“Where we saw the market stop still, we will see the market finding its level, people working out where things are, where value is.” While this created a sluggish market for sellers, there’s a rebound in transactions as open-ended property funds needed to dispose assets to meet investor redemptions.

But according to the survey, the office segment is projected to record the highest decline in valuation at an average of 3.1 percent in Q1 2023, with almost 33 percent of the polled property agents forecasting office values would shrink over 5 percent in the said period.

Notably, the stock prices of listed real estate investment trusts (REITs) such as British Land and Land Securities have already dropped by at least 20 percent due to the falling valuation of their commercial properties, including office buildings.

“Work from home is causing tenants to consider reducing space,” shared one respondent. Another observed that existing commercial property tenants “are more inclined to sign on for shorter lease terms”.

In particular, many real estate agents think that regional and older office properties without sustainability credentials would see weaker demand, while high-end office space should fare better.

“We are seeing more people wanting their own standalone offices in central London than we have in the past,” Antoniou added.

As for commercial property rents, it’s projected to dip by an average of 1.3 percent during the 1st quarter, with rents of retail space forecasted to fare the worst with a contraction of 2.1 percent.