London office valuations fall much faster than blocks

London office valuations fall much faster than blocks

Over the past year, London office buildings have lost almost a fifth of their value, much more than blocks in most European countries.

London office values have dropped 17.1 per cent since summer 2022, falling in each of the past five quarters, data from BNP Paribas shows.

Over the last year, commercial properties have risen due to the steep increase in interest rates, which has caused debt to be more expensive and forced investors to demand better returns from buildings.

The capital's declines are greater than those seen in almost every other major European office market, except for Amsterdam, where values have slipped by about 23 per cent year-on-year.

Compared to last summer, office blocks in Berlin and Paris are worth about 15 percent less now. In Brussels and Frankfurt, office valuations have slowed by just 8 percent, compared to the same in Brussels and Frankfurt.

London investment markets head Fergus Keane, head of central London investment markets at BNP Paribas Real Estate, said that offices in London had repriced more quickly than most other countries because valuers here were more aggressive with their predictions.

Investors have been wary of buying London office properties this year due to the rising cost of debt and rapidly changing property valuations. In the first six months of 2023, £4.8 billion of office sales were agreed, 40 per cent less than in the same period of 2022.

Many of the deals that have gone through have done so for less than what their owners had been hoping to get. The Lion Plaza, located on the corner of the Bank of England, sold for £209 million over the summer, just shy of what its German owner, Doric Asset Finance, had been looking for, when it was first put up for sale at the end of last year.

Similarly, next to the Bank station, One Poultry, at the top of which sits the Coq Ds Hana Alternative Asset Management paid for it five years ago, though Hana has disputed that figure.

Although European office valuations have so far avoid the worst of the repricing, Keane expects that they will eventually catch up to London.

Keane said the downturn in the London office market, which is one of the world's largest and most liquid commercial property markets, has presented a'very rare entry point' for investors.

The cheap pound is attracting overseas buyers, especially to places such as St James's and Mayfair, where buildings that rarely come up for sale are doing so. More than 40 percent of all central London offices that have traded so far this year have been bought by buyers from Asia Pacific region.

values in the West End are better than in other parts of London, such as Hammersmith and Canary Wharf, Keane said. Rents are higher because of the attractive surroundings and the smaller floor plates, which are more popular post-lockdown.

Although some buyers are unfavorable about a building's rental performance, others aren't concerned about it. Nick Braybrook, head of London capital markets at Knight Frank, said a number of wealthy investors were buying offices in and around London's West End to impress their rich friends.

Braybrook said he had not spoken to anyone for two days, and that his decision was not made public. ve bought a load of BP bonds probably doesn't look quite the same as saying that they own the company's headquarters on St James's.