Matthew Pointon, senior property economist at Capital Economics, said: “The City is not faring too well for two reasons: businesses are moving to more prime locations like the West End and companies are downsizing as they move toward hybrid working.”
Several large companies announced plans to downsize in 2023 including HSBC, which plans to exit its Canary Wharf tower for the City of London.
Meanwhile, Facebook’s parent company Meta broke its office lease at British Land’s Regent Street office just two years after signing its agreement. Auditor EY has also said it is considering an office move.
Values have also come down because of new green rules announced by the Government.
Under current rules, commercial buildings must have an energy efficiency rating of at least an E to be rented out.
However, new rules mean buildings must have a minimum rating of C by 2027, rising to B by 2030. Upgrading buildings to meet these standards will cost hundreds of pounds per square foot, an expense that is off putting for investors.
Mr Kolodseike expects property investment to rebound in 2024 as interest rates begin to fall.
He said: “Notwithstanding further unforeseeable geopolitical or economic catastrophes, we believe that investment activity will start recovering towards the middle of next year when the Bank of England is expected to cut interest rates and property yields have peaked.”
