UK Office Values May Fall By 38% In 2-3 Years

UNITED KINGDOM – Citigroup’s property analysts forecasted that the capital values of office buildings in the country could plunge by 38 percent over the next 2 to 3 years due to the continued work-from-home (WFH) trend and higher unemployment arising from a possible recession, reported World Is One News (WION) on Tuesday afternoon (6 December, SGT).

The analysts expect historical levels of unemployment in London, with office space usage falling by 26 percent spread over 15 years due to WFH. As such, they expect office vacancy to surge by 6 percentage points.

Citigroup’s real estate analysts stated this in a note published on Monday that contained their assessment of major London office landlord, Land Securities.

More importantly, they said a recession will most likely impact the UK’s commercial property market. The question is not if, but when will it be felt by the sector?

“Once the down cycle has been triggered – which we believe occurred when rates crossed into recession driving territory through and post the summer of this year – it then comes to the decision of how deep and for how long,” explained Aaron Guy, the team leader of the Citigroup analysts.

Referencing past economic cycles, he estimated that office landlords in the country would have to slash office rents by 43 percent in the next 4 years. Consequently, the selling prices of office buildings are expected to plummet by more than 40 percent as compared to their prevailing market prices.

Then in the next decade, the country’s commercial real estate (CRE) market could witness a 32 percent rebound in rents, given that the “nature of a downturn” means that rental drops would be alleviated by eventual stimulus.

“As we stand today, we would expect the length of the downturn to be tied in large part to how long it takes for inflation to decline,” added Guy.