“The city is not doing very well for two reasons: companies are moving to more prime locations like the West End, and companies are downsizing as they move toward hybrid working,” said Matthew Boynton, chief real estate economist at Capital Economics.
Several major companies have announced plans to downsize in 2023 including HSBC, which plans to move out of its Canary Wharf tower and into the City of London.
Meanwhile, Meta, Facebook’s parent company, has canceled its office lease on British Land’s Regent Street office just two years after signing its deal. Auditor EY also said it was considering moving the office.
Values have also declined due to new green rules announced by the government.
Under current rules, commercial buildings must have an energy efficiency rating of at least E to be rented.
However, the new rules mean that buildings must have a minimum rating of C by 2027, rising to B by 2030. Developing buildings to meet these standards will cost hundreds of pounds per square foot, an unfavorable cost for investors.
Kolodski expects real estate investment to rebound in 2024 as interest rates start to fall.
“Despite further unforeseen geopolitical or economic catastrophes, we believe investment activity will start to recover in the middle of next year when the Bank of England is expected to cut interest rates and property yields peak,” he said.