£230billion commercial property crash
As millions work from home, watchdog warns of…
COMMERCIAL property prices look set to plunge as white-collar workers shun the office, the Treasury watchdog has warned.
after employees across the country were sent to work from home in the coronavirus lockdown, the office for Budget responsibility (oBr) is predicting that the value of offices and other commercial buildings will fall by nearly 14pc this year.
The pandemic has also accelerated the decline on the High Street – hitting the value of shops – as families flock online at the expense of brick and mortar outlets.
if the oBr’s dire prediction comes to pass, it could wipe £230bn off the value of commercial property such as offices and shops across Britain.
The British Property Federation estimates the sector as a whole was worth about £1.66 trillion in 2019.
The oBr said the pandemic had accelerated a shift towards working from home as well as the boom in online shopping, which would result in ‘lower expected demand for retail and office space’ and tumbling prices. it is predicting prices will fall by 13.8pc in the 2020-21 financial year. They are then expected to slowly recover, rising by 0.9pc in 2021-22, 2.6pc in 2022-23, 1.5pc in 2023-24 and 2pc in 2024-25.
Transactions in 2020-21 are also expected to plummet by 23.7pc – delivering a hit to property agents that rely on commission as well as the taxman. The rout has prompted credit ratings agency moody’s to warn that the pandemic trends are ‘credit negative’ for commercial landlords such as land Securities and British land.
ramzi Kattan, an expert and vice president at moody’s, said one bright spot in the sector was logistics and warehouses, which have been boosted by the internet shopping boom.
But he warned the virus crisis had ‘turbocharged’ pressure on traditional retailers and sent shockwaves through office-based businesses.
He said it was possible some businesses would seek more office space in order to comply with social distancing rules but the trend towards working from home would ‘outweigh’ this.
Kattan said: ‘We have had the biggest work-from-home experiment ever during the pandemic and it has gone surprisingly well for most businesses. So we think many companies will now be re-examining their requirements for space and, over time, that is going to hurt demand – especially in large cities.
‘Because of Covid there is also going to be a worse economic environment and that is also going to reduce demand for offices.
‘retail is going to bear the brunt and offices will be hit too over the longer term.’
retailers that have shed jobs and shops during the pandemic include Boots and John lewis, while land Securities warned in may that its offices were just 10pc full. But at the same time, several firms have announced plans to allow staff to work from home more often, including Barclays, morgan Stanley, HSBC, Vodafone, Twitter, Facebook and Unilever.
There is concern about workers shunning offices because of the knock-on economic impact it has, hitting businesses such as sandwich shops that rely on custom from commuters and local office staff.
ex-Conservative Party leader and former cabinet minister iain Duncan-Smith said: ‘if we don’t get this economy opening, if people aren’t returning to work back to their offices, buying meals, getting coffee at the station – all that sort of stuff – then this economy is going to tank, and with it will come mass unemployment.’