Bad days at the office Lure of working from home hits commercial property

The new central London headquarters of the US property company CBRE could easily be mistaken for a hotel, given its open lounges with comfy seating, potted plants, coffee and tech bars and library.

- Julia Kollewe

In the post-pandemic property world, phrases such as “hotelification” and “earning the commute” have become commonplace among executives trying to lure back workers used to working from home. But many bosses accept hybrid working is here to stay, while some smaller businesses have abandoned permanent offices altogether.

With higher borrowing costs, weaker levels of economic growth, and fewer people working in offices after the pandemic, investors fear a perfect storm is brewing in the property sector.

After the collapse of Silicon Valley Bank, the largest banking failure since 2008, and the UBS rescue of Credit Suisse, some City investors are worried the next phase of the crisis could pile pressure on the commercial property market– worth £16tn globally – if banks rein in their lending to the industry.

Last week, the Bank of England increased the base rate for the 11th time in a row to 4.25% as it tries to tame high inflation, while the US Federal Reserve raised rates a quarter of a percentage point to a range of 4.75% to 5%, the highest since 2007. A week earlier the European Central Bank raised its deposit rate by half a point to 3%.

George Gatch, the chief executive of JPMorgan Asset Management, warned last week that offices and shops could be the next casualty. “When the Federal Reserve hits the brakes, something goes through the windshield,” he said. “Commercial real estate is an area of concern. We have higher interest rates for property developers, how does that impact the real estate market and lenders in that space?”