Landlords in London and the South East of England are regularly selling older offices for 20% under their asking price.
This is down to the increased costs of renovation and finance, according to Robert Haigh, a valuations expert at Fisher German’s London office.
He said: “There are plenty of older offices that could do with significant refurbishment to get them to the specifications needed to command higher rents, which has commonly left their landlords with a choice.
“Should they bear the cost of refurbishment and earn their money back through rents from prospective high-paying tenants, or should they sell up and let another party bear the risk?
“More recently, landlords have been opting for the latter, to the point where many agents who are putting the properties on the market are widely overstating their value.
“High interest rates and uncertainty around further inflation in build costs have made investors cautious, and for many the perceived risk weighs heavily on their mind when calculating projected returns, causing the disconnect between asking prices and transactional evidence.
“The high cost of borrowing also affects the landlords, who are struggling to afford the vastly increased costs and risks of going through with a refurbishment.”
Haigh said there is a ‘two-tier market’ as it stands, where pricing for modern ‘green’ offices is extremely high compared to historic buildings.
It seems this trend will only change if the Bank of England continues to cut the interest rate from its current level of 5.0%.
Haigh added: “Unless the base rate falls and inflation remains stable, we foresee this two-tier system to stay for the time being, and potentially widen if nothing changes.
“We will continue to monitor the cost of borrowing, inflation, and the many other factors affecting the office market in London and the South East to provide accurate valuations to our clients in the short term and into the future.”
