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Landlords in London and southeast England are regularly selling old offices for 20% less than the asking price.
Robert Hague, a valuation specialist at Fisher German’s London office, said this was due to increased costs of refurbishment and financing.
“There are a lot of older offices that need significant refurbishment to bring them up to the specs needed to command higher rents, so landlords are being forced to make choices,” he said.
“Should I cover the costs of renovation and recoup the costs through rent from tenants who are willing to pay higher rents, or should I sell it and let another party take on the risk?”
“More recently, landlords have been choosing the latter option, leading many agents putting properties on the market to grossly overestimate their value.”
“High interest rates and uncertainty around further inflation in construction costs have made investors cautious and for many investors the perceived risk in calculating expected returns has weighed heavily, creating a disconnect between asking prices and evidence of transaction.
“Higher borrowing costs are also impacting landlords who are struggling to bear the significantly increased costs and risks associated with refurbishment.”
Hague said that currently there is a “two-tier market” with modern “green” offices being prohibitively expensive compared to historic buildings.
This trend is likely to change only if the Bank of England continues to cut interest rates from the current 5.0%.
Hague added: “Unless base rates fall and inflation stabilises, we expect this two-tiered system to continue for the foreseeable future and may widen if nothing changes.”
“We continue to monitor borrowing costs, inflation and the many other factors affecting the London and South East office market to provide accurate valuations to clients in the short term and into the future.”
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