It’s a tough time to be selling big office blocks in London. Investors are spooked by high interest rates and the rise of hybrid working, making it almost impossible to find buyers for the biggest buildings.

The Numbers Don’t Lie:

• Only a handful of office buildings in London have sold for over £100 million in the first half of this year.
• The City of London has seen no sales at this level, a massive drop from the days when deals worth over £1 billion were common.
• Even big players like GPE and Derwent are struggling to shift their premium properties, as potential buyers are balking at the prices.

Why the Cold Shoulder?

The combination of rising interest rates and uncertainty over office demand is making investors nervous.

• The cost of borrowing has shot up in the last two years, making it more expensive to finance a purchase.
• Hybrid working, where employees split their time between the office and home, has reduced the demand for office space, making some investors question the long-term value of big office buildings.

A Bleak Picture for Investors:

• An MSCI index shows that if you bought a central London office building since 2014, you’d likely be looking at a loss if you sold it today.
• A whopping 64 per cent of London office buildings would sell for less than their original purchase price at current market levels.

The Sales Slump:

• Just £2.5 billion worth of central London offices have changed hands this year – a 28% drop from last year’s already sluggish market.
• Big players like Derwent and GPE have been forced to put potential sales on hold after bids fell short of expectations.

What’s Holding Back the Market?

• Pricing Pressure: Landlords are struggling to find buyers willing to pay their asking price, so they’re having to adjust their expectations.
• Financing Woes: High interest rates are making it difficult for most buyers to secure loans to fund a purchase.
• Buyer Pool: The only active buyers are ultra-wealthy families, who typically buy with little debt, but they’re limited in the size of building they can handle.

A Glimpse of Hope?

• Some experts believe the market is stabilising, with a slight increase in seller confidence as interest rate rises slow down.
• There have been some distressed sales, but they’re not as widespread as initially feared.

The Bottom Line:

The London office market is facing tough times, with a lack of buyers and falling prices. While there are some signs of hope, the future remains uncertain, and it’s likely to be a bumpy ride for investors in the short term.