In April, the Telegraph reported that John Lewis was planning to reduce the size of its central London headquarters by more than half after staff left their desks to work from home.
Canary Wharf residents such as Clifford Chance and HSBC have announced plans to exit the area as they downsize, and the vacancy rate for offices on the quay is currently at 16%, the highest level in years. ing.
Declining office values may sound abstract, but it has far-reaching implications. Pension funds pass that cash on to asset management companies that invest in real estate. This means that your retirement income may decrease due to a decline in value.
You might think that 2024 would provide some measure of relief. UK interest rates are expected to fall to 4% by the end of the year, easing downward pressure on prices.
But experts say the outlook is bleak, given new net-zero rules aimed at boosting the green credentials of office blocks and the continued trend of working from home.
“Valuations have been significantly impacted by the uncertainty of future office demand and ESG considerations,” Greenshields says.
New rules went into effect in April, requiring all office buildings to have an energy efficiency rating of at least E to be granted a permit. Minimum standards will rise rapidly over time, requiring many owners to spend even more money on upgrades.
Under the new “green” tape regulations, a minimum rating requirement of C will come into effect by 2027, then increase to B in 2030.
In London, only around 23% of all offices are rated A+, A or B. According to BNP Paribas, approximately 8% of all commercial stocks were effectively listed illegally when the minimum E rating came into effect.
As it has become much more expensive to obtain capital to fund these upgrades, the worry is that many investors will simply sell without meeting the necessary requirements. is. There is a danger that London will be littered with vacant properties that do not meet standards.