Deutsche Bank AG: ‘Bust followed by boom’ for UK offices

Central London’s best offices may lose as much as 30% of their value by the end of next year before the UK bounces back to beat continental Europe for the rest of the decade, according to Deutsche Bank AG.

A decline in UK commercial property values will accelerate in 2017, with parts of the London centre seeing a much sharper drop than the average of 10% to 15%, the German bank’s asset management unit said in a report yesterday.

Simon Wallace, head of alternative asset research at the unit, said the fall could reach 30%.

London’s business districts are among the most vulnerable because of increasing supply, high rents and the risk of reduced EU market access after the Brexit vote, according to the report.

While the Deutsche Bank unit is maintaining an underweight position on London property, it’s now recommending investors start preparing to re-enter the UK market by the latter part of 2017, focusing on the best buildings in central locations.

A slowing UK economy will prompt a drop-off in construction starts, which together with loose monetary policy should result in a total return for central London offices bouncing back from 2018 to 2020.

The total return, which includes rental income and changes in value, should rebound to about 10% a year over the period, according to the report.

The total return on UK commercial property fell 0.2% in August, according to MSCI Inc. That followed a 2.4% decline in July, the biggest since the global financial crisis.


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