The value of London offices is set to drop dramatically in the next two to three years, as working from home and firms downsizing their workforce will keep demand for office space low, investment bank Citi says. In a note to clients on Monday rating office landlord giant Land Securities
LAND,
+1.25%
with a neutral rating, Citi’s real estate analyst team led by Aaron Guy said that “recessionary impacts on higher unemployment and continued work-from-home office shrinkage” will drive down office values in the U.K.’s capital by 38%.
“We estimate historical levels of London office unemployment and a work-from-home estimate of 26% of space loss spread over 15 years. This drives our vacancy rate estimates up 6 percentage points,” the team said. Guy said while LandSec has taken an approximate 60% hit to the valuation of its retail property and will drop a further 17%, its London office portfolio hasn’t faced a similar situation yet. It is a question of when, not if, the recession will impact the commercial property sector. “Once the downcycle has been triggered – which we believe occurred when rates crossed into recession driving territory through and post the summer of this year – it then comes to the decision of how deep and for how long,” he said. Guy added that office block l …