Slump in commercial property investment

COMMERCIAL property investment dropped by almost 50pc in 2023 after high interest rates and working from home pushed the sector into turmoil.

Around £33bn was invested into UK offices, shops and other commercial property between January and the end of November, according to data from Colliers. That compared to £59bn across the same period last year.

Oliver Kolodseike, a director at Colliers, said: “2023 has been a year characterised by economic and geopolitical challenges, high inflation, and surging debt costs.”

Soaring interest rates in the UK have made borrowing to buy buildings more expensive, pushing down demand and weighing on prices. The value of all commercial buildings have come down by 3.7pc in the last year.

Offices have suffered as the continuation of working from home leads to less demand for space. The value of workspaces plummeted 19.8pc in a year to the end of the third quarter.

Matthew Pointon, at Capital Economics, said: “The City is not faring too well for two reasons: businesses are moving to more prime locations like the West End and companies are downsizing as they move toward hybrid working.”

Several large companies announced plans to downsize in 2023 including HSBC, which will exit its Canary Wharf tower for the City of London. Facebook’s parent company Meta broke its office lease at British Land’s Regent Street office just two years after signing its agreement. Auditor EY has also said it is considering an office move.

Commercial buildings must have an energy efficiency rating of E to be rented out. However, new rules mean buildings must have a minimum of C by 2027, rising to B by 2030. Upgrading to meet these will cost hundreds of pounds per square foot, an expense that is off putting for investors.