London Office Property Deals Stall as Sellers Hold Out for Price Recovery

April 21, 2024

Investment volumes in the London office market have slumped in the first quarter of the year due to stalled property transactions, but signs of improvement are on the horizon.

Two significant property deals, totalling £436 million, fell through at the beginning of the year as sellers opted to wait for potential price recoveries amid anticipated interest rate declines later in the year.

One deal involving a 12-storey office block in Canary Wharf was withdrawn from the market by its owners last month. The property, known as 5 Churchill Place and once occupied by investment bank Bear Stearns, was put up for sale by its Chinese owners, Cheung Kei Group. However, negotiations with Israeli real estate group Ariomori, reportedly at a substantial discount, have ceased as the banks associated with the Chinese firm anticipate improved pricing.

Similarly, a £240 million deal by a Korean investment fund for 20 Old Bailey was halted, with Mirae Asset Global Investments opting for refinancing and a potential future sale instead.

Data from information firm CoStar shared exclusively with City A.M., revealed that UK office investment of around £2.3 billion was down 42 per cent year-on-year, partly due to these collapsed deals as sellers reconsidered amid expected interest rate adjustments.

Despite these setbacks, sentiment in the commercial property market is recovering, buoyed by upcoming high-profile developments in London over the next decade. Projects like the £500 million, thirty-story tower planned near Liverpool Street by UK property developer Sellar and Japanese developer Obayashi signal renewed investor interest in prime locations, particularly in London’s West End.

Mark Stansfield, senior director of UK Market Analytics at CoStar Group, noted that growing expectations of interest rate cuts have reignited investor confidence in London’s property market, especially in strong locations like the West End. This renewed interest suggests the beginning of a potential rebound in property values, although investors remain cautious and selective in their choices.