Oct 22 2024: Britain’s commercial property market is beginning to recover following the post-pandemic freeze, though mainly at significantly lower prices. The sale of high-profile office properties will help determine the market’s bottom and the pace of recovery, especially in the office sector, which has been heavily impacted.
Nuveen has listed the “Can of Ham” tower in London for £322 million ($419 million), lower than its £400 million target in 2022. Similarly, Brookfield is selling the Citypoint tower for around £500 million, down from its previous valuation of £670 million.
Newer office buildings are seeing strong demand, with M&G’s towers at 40 Leadenhall already more than 80% leased. To attract tenants, the property offers various amenities, including saunas, fitness suites, and even a cinema room. M&G’s deputy global head, Martin Towns, noted that tenants are looking to upgrade their spaces, while older offices may be repurposed or demolished.
The pandemic caused a significant shift in global commercial property markets, driving inflation, increasing financing costs, and reducing the demand for office space as remote work became more popular. Construction costs for prime London offices have surged, driven by inflation and the demand for better amenities and sustainability features.
While some properties, especially older office spaces, are still struggling to find buyers, prime offices, rental housing, and logistics properties are beginning to recover. As inflation and interest rates ease globally, the appeal of property investments is improving.
James Seppala, Blackstone’s head of real estate in Europe, noted that the market sentiment in the UK has shifted positively, with more investors actively participating. However, office sales remain sluggish, with volumes down 21% this year, and London office vacancy rates are at a 20-year high, particularly in areas like Docklands, where vacancies have reached 17%.
Despite lower prices, investors are beginning to accept current market realities, with some forced into sales due to high refinancing costs. Foreign buyers are expected to seize opportunities, attracted by the UK’s political stability. Domestic investors like Schroders are also planning to invest significantly in British commercial properties, including prime offices, as interest from international markets continues to grow.
