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 quit the district as they downsize, with the vacancy rate for offices in the docklands now at 16pc – the highest level in years.
Falling office values may sound abstract, but it has broad implications. Pension funds hand their cash to money managers that invest in property, meaning a downturn in values can lead to smaller returns on your retirement cash.
You may think 2024 will bring some relief. Interest rates in Britain are forecast to fall to 4pc by the end of the year, easing downward pressure on prices.
But experts say new net zero rules intended to boost the eco-credentials of office blocks, and the continued trend of working from home, means the outlook is bleak.
“Valuations have been hugely affected by the uncertainty of future office demand and ESG considerations,” Greenshields says.
New rules came into force in April requiring all office buildings to have an energy efficiency rating of at least E in order to be let out. The minimum threshold will ratchet up quickly over time, which will require many owners to sink more money into upgrades.
A minimum rating requirement of C will come into force by 2027 under the new “green” tape rules, before rising to B in 2030.
In London, only around 23pc of all offices are rated A+, A or B. When the minimum E rating came into force, around 8pc of all commercial stock was effectively illegal to let out according to BNP Paribas.
With money to fund these upgrades now much more expensive to get hold of, the worry is that many investors will simply sell up rather than make the necessary requirements. It risks leaving London littered with empty properties that aren’t up to standard.
