Some Office Landlords Could Be Pushed To The Brink In 2023

GLOBAL – Some office landlords could be pushed to the brink next year due to inflation, higher borrowing costs, and the possibility of a recession, reported The Financial Times on Monday evening (2 January, SGT).

Market watchers expect forced sales will start in earnest across some major office markets across the globe by 1H 2023, as some commercial property owners need to refinance their loans at far higher interest rates, or they would need to dispose their assets to comply with redemption requests from their investors.

“The market is recalibrating as the long era of cheap money, which has drawn so many new investors to the sector since the financial crisis, comes to a juddering halt,” wrote George Hammond, a property correspondent based in London working for the news outlet.

“No-one involved in commercial property anticipates an easy ride in 2023. A downturn has already begun and is expected to worsen. The question being asked by analysts and investors is: how far will the market fall before it reaches a new equilibrium?”

Aside from that, Hammond believes that office buildings could be among the riskiest assets next year.

“In 2022, the phrases ‘stranded assets’ and ‘zombie offices’ drifted into the lexicon of property agents and investors. Both describe the slew of older workplaces that will fall short of new environmental legislation that is being phased in.”

But in the year of the water rabbit, he expects the value of office properties would continue to be impacted by new regulations. Hammond elucidated that landlords would need to spend capital to upgrade their office buildings so that their properties would meet new rules and keep luring occupants.

However, he thinks that office landlords’ wherewithal to invest in their office towers is expected to be severely affected this year amidst a dismal economic environment.