London Office Repricing: Where Are We in the Cycle?

London office repricing is advanced, but the cycle is not complete. Prime, sustainable buildings with secure income are closer to price discovery, while secondary offices still face valuation pressure from refinancing, obsolescence and high refurbishment costs.

TL;DR

• Higher interest rates reset required returns and pushed London office yields outward from their pre-2022 levels.
• Repricing is now driven as much by building quality, lease security and capital expenditure as by postcode.
• Prime West End and best-in-class City assets are generally finding price discovery before secondary offices.
• Refinancing events and sustainability requirements are likely to bring more motivated sales to market.
• The next phase should favour selective acquisition rather than a broad recovery across all London offices.

The London office repricing cycle in brief

The repricing began when the Bank of England increased its base rate from 0.1% in December 2021 to 5.25% by August 2023. This rapid change lifted debt costs, increased investors’ required returns and weakened the prices buyers could support.

Commercial property valuations usually adjust with a lag. Listed real estate reprices quickly, while direct-market evidence takes longer because transactions can be delayed or withdrawn. London office investment volumes consequently became thin, making headline yields less conclusive than they appear.

The cycle can be divided into four broad stages:

| Stage | Market characteristics | London office position | |—|—|—| | Monetary shock | Debt costs rise and buyer underwriting changes | Largely passed | | Transaction freeze | Bid-ask spreads widen and volumes fall | Easing selectively | | Price discovery | Motivated trades establish new evidence | Advanced for prime; incomplete for secondary | | Recovery | Liquidity broadens and values stabilise | Emerging only in selected segments |

This is not yet a conventional recovery. It is a transition from interest-rate-led repricing to asset-level differentiation.

How far have values adjusted?

There is no single London office price correction. City of London towers, Mayfair offices, fringe locations and older suburban buildings have different tenant markets, lease structures and capital requirements. Published indices from MSCI, transaction evidence reported by Savills, JLL, CBRE and Knight Frank, and valuations prepared for individual funds may therefore show different outcomes.

Three variables explain much of the current pricing gap:

1. Investment yield: The return required by an all-equity buyer before leverage.
2. Rental outlook: Whether the building can capture demand for high-quality space.
3. Capital expenditure: The cost of meeting occupier expectations and regulatory requirements.

A simple illustration shows why yield movement matters. An office generating £5 million of annual net operating income is worth £125 million at a 4% yield, before transaction costs and other adjustments. At a 5% yield, the same income supports £100 million. If significant refurbishment is also required, the economic value to a buyer falls further.

| Illustrative factor | Supportive for value | Negative for value | |—|—|—| | Yield | Stable or compressing required return | Further outward movement | | Rent | Prime rental growth | Weak demand or incentives rising | | Lease | Long, index-linked or strong covenant income | Near-term expiry or tenant break | | Building | Modern, efficient and amenity-rich | Obsolete specification | | Capital needs | Limited near-term works | Heavy retrofit and leasing costs |

These figures are illustrative, not a valuation forecast. Individual assets must be assessed using their net income, lease events, purchaser costs and required works.

Prime versus secondary offices

The most important feature of the current cycle is bifurcation. London’s best buildings can benefit from occupiers consolidating into less but better space. Older offices may suffer even when they sit within the same submarket.

> Prime versus secondary > > – Prime: Efficient floorplates, strong sustainability credentials, modern services, attractive amenities and good transport access. > – Secondary: Ageing systems, weaker energy performance, constrained layouts or significant near-term capital expenditure. > – Prime income: More likely to attract resilient corporate covenants and support lender appetite. > – Secondary income: More exposed to vacancy, lease incentives and refinancing constraints. > – Prime strategy: Income acquisition or selective development at a reset basis. > – Secondary strategy: Repositioning, change of use or acquisition only at a material discount to total replacement cost.

Savills, JLL, CBRE, Knight Frank and Colliers have consistently highlighted occupier demand for high-quality, sustainable space. However, the phrase “flight to quality” should not be treated as proof that every new or refurbished building will perform. Micro-location, floorplate efficiency, transport, amenities, lease flexibility and the supply pipeline remain decisive.

For secondary offices, the relevant price is often not a discounted version of prime value. It may instead be residual value: the completed value after deducting construction, finance, professional fees, vacancy, incentives, contingency and an appropriate development return.

What will determine the next phase?

Interest rates remain important, but the Bank of England base rate is only one component of office pricing. Commercial debt is commonly referenced to swap rates or SONIA, with a lender margin added for asset and borrower risk. Long-term gilt yields also influence the opportunity cost of holding property.

The next stage will depend on five indicators:

• Transaction liquidity: More completed sales would improve comparable evidence and reduce uncertainty.
• Debt availability: Lower all-in borrowing costs would widen the buyer pool, but leverage alone cannot repair weak property fundamentals.
• Occupier demand: Leasing velocity and rental incentives matter more than quoted headline rents.
• Development supply: Limited delivery of prime space may support rents, while excessive pipelines can undermine them.
• Forced or motivated selling: Loan maturities, fund redemptions and business-plan deadlines can create investable entry points.

Cycle timeline

• December 2021 → The Bank of England began raising the base rate from 0.1%.
• 2022 → Gilt yields and financing costs rose sharply; office bid-ask spreads widened.
• August 2023 → The base rate reached 5.25%, intensifying refinancing pressure.
• August 2024 → The Bank of England made its first cut of the cycle, reducing the base rate to 5%.
• 2025 onward → Attention increasingly shifted from the direction of rates to asset quality, refinancing and executable business plans.

The existence of rate cuts does not automatically mean office yields compress. Investors also require confidence in income, exit liquidity and the cost of maintaining a competitive building.

Sustainability and obsolescence are repricing mechanisms

Energy efficiency is no longer solely an environmental consideration. It affects letting prospects, lender appetite, capital expenditure and exit value.

Under the Minimum Energy Efficiency Standards administered through gov.uk, landlords generally cannot continue to let covered non-domestic property below EPC E unless a valid exemption applies. Future policy may tighten standards, but investors should distinguish current law from proposed targets and verify the latest position before acquisition.

What to check before acquiring a London office

1. Verify the EPC and exemptions: Confirm the certificate, underlying assessment and any registered exemption.
2. Commission a costed net-zero pathway: Separate essential compliance works from enhancements intended to attract occupiers.
3. Test plant and services: Review lifts, heating, cooling, ventilation, power capacity and remaining useful life.
4. Analyse leases individually: Model breaks, expiries, rent-free periods, dilapidations and covenant strength.
5. Underwrite void costs: Include business rates, service-charge shortfalls, security and insurance during vacancy.
6. Stress-test finance: Model interest-rate, loan-to-value and interest-cover covenants without relying on optimistic refinancing.
7. Assess alternative uses: Consider planning, daylight, floor depth, structure and local policy before assigning conversion value.

Not every older office is obsolete. A well-located building with adaptable structure and a viable retrofit budget may offer better risk-adjusted returns than a fully priced trophy asset. Equally, a low acquisition price is not protection if capital expenditure and vacancy have been underestimated.

Where opportunities are emerging

The investable opportunity set is separating into three broad strategies.

| Strategy | Potential attraction | Principal risk | |—|—|—| | Core prime income | Strong covenant, modern building and lower execution risk | Entry yield may offer limited protection if rates stay higher | | Value-add refurbishment | Reset basis and potential to create scarce Grade A space | Cost inflation, planning, leasing and delivery risk | | Distressed secondary | Deep headline discount and possible alternative use | Value trap if retrofit or conversion is uneconomic |

The West End may offer defensive characteristics where supply is constrained and occupiers value proximity, prestige and amenities. The City can provide larger lot sizes, deeper corporate demand and opportunities in modern towers or comprehensively refurbished stock. Emerging and fringe locations can offer higher initial yields, but they require stricter analysis of tenant depth and future liquidity.

Family offices and GCC investors may have an advantage where patient equity, lower leverage and longer holding periods allow them to transact through short-term volatility. Institutional capital may be better placed to aggregate assets, undertake complex refurbishment and establish operating platforms. In both cases, governance around development risk and local execution is essential.

Direct ownership should also be compared with listed property companies, real estate debt and diversified funds. The FCA regulates financial services and collective investments, but direct commercial property itself presents distinct liquidity, tax and legal considerations. Investors should obtain appropriately regulated financial, tax and legal advice.

McGardens’ view

London office repricing is late in its financial phase but earlier in its physical-obsolescence phase. The initial valuation reset reflected higher discount rates; the remaining adjustment will be determined building by building as leases expire, loans mature and refurbishment budgets become unavoidable.

This distinction matters for family offices and institutional capital. Waiting for an index to mark the absolute bottom may mean missing the best assets, because high-quality buildings can attract competitive bidding before aggregate values recover. Conversely, buying secondary stock merely because it has fallen furthest can transfer the previous owner’s deferred expenditure to the new buyer.

The preferred approach is selective and basis-led. Investors should seek one or more of the following: durable income bought at a sensible spread over financing costs; a credible route to create scarce prime space; or land and structure value that supports alternative use. An acquisition should remain viable under conservative rent, incentive, exit-yield and construction-cost assumptions.

The key signal that the cycle has turned will not be a single Bank of England decision. It will be a combination of broader transaction liquidity, tighter bid-ask spreads, functioning debt markets and repeatable evidence that refurbished or newly delivered space can lease at underwritten terms.

Key takeaways

• London office repricing is advanced but uneven rather than complete.
• Prime assets are closer to price discovery; secondary buildings remain exposed to capex and refinancing pressure.
• Falling base rates may help liquidity, but property-level income and obsolescence will determine returns.
• Family offices and GCC investors can use patient capital selectively, without assuming that every discounted office is mispriced.
• The strongest acquisitions will be supported by conservative cash flows and an executable asset-management plan.

FAQ

Have London office values reached the bottom?

London office values have not reached a uniform market-wide bottom. Prime buildings with secure income may already be near or beyond their local trough, while secondary assets can face further adjustment when refinancing, vacancy or refurbishment exposes their true capital requirements. Reliable confirmation requires broader transaction evidence rather than movements in quoted yields alone.

Will Bank of England rate cuts increase London office prices?

Bank of England rate cuts can support London office prices, but they do not guarantee a recovery. Office debt also depends on SONIA or swap rates, lender margins and property risk. Values are more likely to improve where cheaper capital coincides with secure income, constrained supply and credible rental growth.

Are secondary London offices now good value?

Secondary London offices are good value only when the price covers the full cost and risk of repositioning. Investors should deduct refurbishment, finance, professional fees, void costs, incentives and contingency from the expected completed value. A large discount to the former valuation is not sufficient evidence of an attractive basis.

Which London office submarkets are most resilient?

Prime parts of the West End and the City are generally the most defensible, but resilience is asset-specific. Transport access, nearby amenities, occupier depth, development supply and building efficiency can matter more than the broad postcode. Investors should compare each micro-market’s net effective rents, vacancy and forthcoming Grade A supply.

Can family offices benefit from London office repricing?

Family offices can benefit where patient equity and limited reliance on leverage create negotiating flexibility. They may target long-income prime assets, recapitalisations or refurbishment opportunities that require a longer hold. The advantage disappears if governance, development expertise or realistic capex underwriting is absent.

Is converting an office to residential a reliable exit strategy?

Office-to-residential conversion is not a reliable default exit strategy. Planning rules, permitted-development exclusions, floor depth, daylight, structure, affordable-housing policy and fire-safety requirements can prevent or weaken a scheme. Investors should secure planning and technical advice before attributing residential value to a London office.