London office valuations fall much faster than other European markets

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London office valuations fall much faster than other European markets

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

London office values have fallen 17.1 percent since summer 2022, falling in every of the past five quarters, data from BNP Paribas shows.

In the past year or so, commercial property prices have risen due to the significant increase in interest rates, which has caused debt to be more expensive and prompted investors to demand better returns from buildings.

But the declines seen in the capital are greater than that 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 per cent less now. Office valuations in Brussels and Frankfurt have fallen by just 8 percent, compared with the same in Frankfurt and Brussels.

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

Investors have been worried about buying London office buildings this year because of the high cost of debt and rapidly changing property valuations. In the first six months of 2023, the firm said it had agreed 40 per cent less of office sales than in the same period of 2022.

Many have done so for less than what their owners had been hoping to get. The site, situated between Bank of England and London, sold for £209 million over the summer, less than half 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, another bank station, One Poultry, sits at the top of which the Coq Ds Hana Alternative Asset Management paid for it five years ago, although Hana has disputed that figure.

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

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

The cheapest pound is attracting overseas buyers, particularly to places like 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 trading so far this year have been bought by buyers from the Asia Pacific region.

values in the West End are holding up better than in other parts of London, such as Hammersmith and Canary Wharf, Keane said. tenants are drawn to the lively atmosphere of the buildings and the smaller floortops, which are more popular after-lockdown, which leads to a significant increase in rents.

Although most buyers do not care about a building's rental performance, they are not worried about its performance. Knight Frank's head of capital markets in London, Nick Braybrook, said recently that a number of rich investors were buying offices in and around London's West End to impress their rich friends.

Braybrook said he'd like to know whether he is right and if so, why. In other words, 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.