London’s Best Offices Face 15% Plunge in Values From Virus Hit

(Bloomberg) --

London's best offices are forecast to plunge in value by as much as 15% this year as the coronavirus hits rents and investors' appetite for real estate.

The widespread lockdowns prompted by the outbreak are set to pummel real estate as thousands of businesses can't or won't pay their rent. The severe economic impact, coupled with questions about the lasting impact on the need for offices and stores, threatens to bring a decade-long bull run for commercial property to a shuddering halt.

Prime rents for workspace in the U.K. capital will drop by about 10% as the economy sinks into a deep recession, before starting to recover next year, according to DWS Group. The sharp declines will likely be mirrored across Europe, with Italian, Irish and Spanish office markets more severely affected, while Germany proves more resilient, the asset manager said in a report on Tuesday.

“We are expecting to see an increase in job losses and a significant increase in business failures,” Simon Wallace, global co-head of alternatives research and strategy at DWS, said by telephone. “For most office markets, that will see a fairly sharp increase in vacancy rates over the year.”

Shopping malls will be worst affected, with rents for the best centers down by about 12% across Europe this year, according to the report. Apartment and warehouse rents will be more resilient, with declines of just 4% and 5%, respectively.

©2020 Bloomberg L.P.