London Office Values Will Drop 21% This Year, King Sturge Says

Central London office buildings will lose 21 percent of their value this year, the biggest decline in the U.K., as potential buyers struggle to finance purchases in the worst slump since the 1970s, according to King Sturge.

In the U.K. as a whole, office values will drop 20 percent, the property broker said. That compares with a 30 percent decline in 2008. Values for all commercial real estate in the U.K. will fall 15 percent this year, King Sturge estimates.

The biggest banking crisis since the end of World War I accelerated a slide in real estate values that began in mid-2007. Property values will probably fall 45 percent in total before a recovery starts in 2010, King Sturge said. That will exceed the 40 percent decline of the 1990s slump, the company said.

“Offices will register the most dramatic drop, led by the correction in central London,” said Mark Bourne, the broker’s partner in charge of offices, at a presentation today.

Angus McIntosh, head of research at the broker, said the U.K. commercial property market will become polarized between the most expensive buildings and those that are empty, in disrepair and poorly located, which will depreciate much faster.

“The grave-dancers will have wonderful opportunities” to buy prime real estate, marking a “turning point in the market,” he said.

One Fleet Place

King Sturge advised London & Stamford Property Ltd. on the purchase of One Fleet Place, an office building in London, which was announced today. London & Stamford paid about 45 percent less than the property’s estimated value in June 2007, co-founder Patrick Vaughan said in a telephone interview.

Declining demand from financial-services companies and the U.K. recession will cause average rents to fall 20 percent in central London, returning tenancy costs to 2004 levels. Landlords will offer rent-free periods approaching three years for a standard 10-year lease to reduce the amount of empty space.

Average rents will fall 10 percent across the U.K. for shops, offices and warehouses. Values of retail-related properties will probably decline 13 percent this year, while warehouses will lose about 11 percent, the broker said.

To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.

To contact the editor responsible for this story: Alan Mirabella at amirabella@bloomberg.net.

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