Wednesday 7 June 2017

Could Class A, well let, CBD, major city offices lose 50% of their value?

  • Decentralisation, the costs of operating in places like London/ NY are too high  
  • Remote working leading to less demand, particularly smaller businesses 
  • More supply being built, cranes everywhere in major cities 
  • The middle market being hollowed out in many industries meaning fewer firms will pay for prestigious offices and will take less space 
  • Ground floor retail units worth less as footfalls decline 
  • Higher interest rates pushing up cap rates, from 4% cap rates now
  • Pensions selling as they get hit with duration losses on Fed hikes and leveraged RE players squeezed out 
The only positive I can think of is that after they fall in price, if you own them then you own a cash generative, cheap, real asset, which you can finance with paper, negative real rate, yielding debt. But that requires a price fall to set it up first.

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