LONDON, Oct 22 (Reuters) – Britain’s commercial property market is returning to life after its post-pandemic freeze, albeit largely at much lower prices.
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Real estate investor Nuveen has put a 21-storey City of London tower it completed in 2019, informally known as the “Can of Ham” due to its rounded shape, up for sale for 322 million pounds ($419 million), below about 400 million pounds it had sought in 2022, a person familiar with the matter said.
But a recent tour showed what it needed to do to attract tenants, with the building offering saunas, treatment rooms, a hair salon, a yoga room, Peloton fitness suite, a cinema room and a library – most for the exclusive use of office tenants.
“We had a conviction that tenants would want to upgrade their space,” said Martin Towns, deputy global head of M&G Real Estate. Some out-of-favour older offices would have to be converted into other uses like housing, or demolished, he said.
The cost of building prime offices in London has risen to more than 500 pounds per square foot now from less than 400 pounds before the pandemic, construction consultancy Turner & Townsend alinea said. Half of that increase was down to inflation, with the rest down to better amenities and green credentials, it said.
While some properties, such as older out-of-town offices, remain near-impossible to sell, the British market is improving for prime offices, rental housing and logistics, investors said.
A global retreat in inflation and interest rates is starting to ease financing costs and improve properties’ appeal relative to other investments.
“There is more robust activity, and more participants are coming off the sidelines.”
OFFICES LAG RECOVERY
After plummeting in 2022 and 2023, UK commercial prices are also expected to rise 2% this year, even as they continue to fall in the euro zone and the United States, and to outperform other Western markets over the next four years, Capital Economics said.
But office sale volumes are still down 21% so far this year, MSCI said, lagging the rest of the UK market. There were also no deals over 100 million pounds in the first half of this year, the first such six-month period since 1999, according to CoStar.
FORCED SALES
Property investors and agents say would-be sellers are coming round to accepting today’s lower prices. Some may be forced to sell by high refinancing costs, according to bankers, but foreign buyers could be willing to swoop.
“Many investors are saying the UK is a good investment location because of the stable political situation and they are wanting to get in before prices start to rise,” said Fiona Voon, head of real estate capital markets UK at BNP Paribas.
“Offices to some extent has been a bit of a dirty word,” said Nick Montgomery, global head of real estate at Schroders. “From the position we’re in, it’s more of an opportunity than a risk… The pendulum always tends to swing too far.”
($1 = 0.7693 pounds)
Reporting by Iain Withers and Sinead Cruise
Editing by Tommy Reggiori Wilkes and Tomasz Janowski
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