Selling pressure has mounted after American investment titan Bank of America warned that “real estate’s glory days are numbered”.
A major concern for the bank was that “working from home and hybrid working are here to stay”, adding in its research note: “Recession will likely lead office occupancy and market rental values to decline and property prices to fall apart”.
Part of this comes as renters expect more from properties and greater value for money, which is worsened by landlords’ borrowing costs now “solidly higher than investment yields”, said the US bank.
Shares in Land Securities, Workspace and Great Portland Estates tumbled more than five per cent yesterday, while British Land plunged nine per cent.
These dips knocked £1.4bn off their combined stock market value, and continue to plunge further this afternoon.
Bank of America predicted that rental growth would slow to a halt by 2024.
Commenting on the research, Director of Benham and Reeves, Marc von Grundherr, told City A.M. that there is no doubt that pandemic has left a “lasting legacy” with our work and home lives.
However, von Grundherr added that many sectors have enforced a return to the workplace in recent months and this has brought about an almost immediate revival in commercial rental values, particularly within London, where commercial asking rents are now some 28 per cent higher than prior to the pandemic.
“There remains a large degree of economic uncertainty at present with the likelihood of a recession looming large. Just what impact this will have on the commercial market remains to be seen, but any turbulence is likely to be short lived due to the cyclical nature of the real estate market”, he said.
“So while we may well see a drop in demand and property values in the coming months, this certainly won’t mark the demise of the market and London continues to stand strong and remains very much open for business.”