A recent report issued by Citi’s real estate analyst team doesn’t paint a particularly good picture for office space in London. According to their analysis, office building values could drop by as much as 38% in 2023. A variety of negative influences are driving the trend toward lower values.

It all adds up to property owners being in a bad position. Some will find themselves in financial ruin while others will find a way to weather the storm. But even those who stick with it and make it through the other side could be looking at significant losses. Perhaps the best thing for some to do is get out now.

Selling an office building today will not net an owner as much as it would have two years ago. But it could net significantly more than a sale sometime in 2023 or in 2024. If office buildings are in your portfolio, you need to ask yourself how low you are willing to go on value. Are you prepared to withstand a 38% drop in 2023?

Lower Demand for Office Space

Among the many factors influencing the downward trend is a lower demand for London office space. Some two years after the COVID pandemic began, many companies whose workers used to spend their days in London office buildings are still allowing those workers to work from home. Meanwhile, they are enjoying the savings that come with not having to lease office space.

Lower demand for office space means less revenue coming in. That makes London office buildings less valuable. Recessionary trends are not making any things easier on property owners. Today’s recessionary pressures are leading to higher unemployment. Prices on everything – including office rents – have gone up. Whenever you combine inflation with recession, property values take a hit. We are seeing that now.

Expect Rents to Fall Further

If the news isn’t bad enough, Citi’s analysis also suggests that commercial rental rates could fall by some 43% over the next four years. Their prediction is based on the “inverse correlation between rents and vacancy rates.”

As previously explained, the demand for office space in London just isn’t as strong as it used to be. When property owners cannot fill their offices, they lower rents to attract new tenants. It is supply and demand in its purest form.

Here’s the bottom line: a number of factors are weighing heavily on the demand for London office space. There is nowhere else for rental rates to go but down. And as they plummet, property values will fall with them. You are looking at a serious situation if you own office buildings in London.

We Buy Commercial Property

Not all is bad news for London commercial property owners though. There is some good news, starting with the fact that we buy commercial properties. We are interested in all sorts of opportunities ranging from bars and pubs to London office space. We would relish the opportunity to talk with you about your property.

There’s no telling how long the current recessionary trends will last. But if Citi is anywhere near accurate in their assessment of the prospects for London office properties, the next several years could be rough. Property owners could be looking at a tremendous loss of value.

If the current trends concern you, let us talk about your property. If we can work out a deal that allows you to exit the office space market at a fair price, we both win. Now could be the best time to get this done. You may not have a better chance for quite some time.