Britain’s commercial property market is beginning to revive after the slowdown caused by the pandemic, though prices remain notably lower than before. Several significant office buildings are

now up for sale, and these transactions will provide insights into where the market is headed, particularly in the struggling office sector. The outcome of these sales could also indicate what lies ahead for other countries still experiencing more severe downturns.

For instance, real estate investor Nuveen has listed a 21-story office tower in London, nicknamed the "Can of Ham" due to its rounded shape, for £322 million ($419 million). This is less than the £400 million sought in 2022, according to an insider. Meanwhile, Brookfield, a Canadian firm, is aiming for around £500 million for its Citypoint tower, which was last valued at £670 million and sold for £560 million in 2016, according to data from CoStar.

While newer office buildings are in demand, the competition is fierce. M&G's 40 Leadenhall office towers in London, for example, are over 80% leased, yet offer luxury amenities like saunas, yoga rooms, a cinema, and a fitness suite to attract tenants. Martin Towns, M&G's deputy global head of real estate, believes many older offices may need to be repurposed or demolished.

The pandemic significantly impacted commercial real estate, increasing inflation and financing costs, while accelerating a shift toward hybrid work models. This has driven demand for less space, but higher quality offices. Construction costs for prime offices in London have also surged from under £400 per square foot before the pandemic to over £500 today, driven by inflation and the need for better amenities and environmental credentials, according to consultancy Turner & Townsend alinea.

Despite challenges, the British market is improving for prime offices, rental housing, and logistics properties. Investors are also benefiting from falling inflation and interest rates, which are lowering financing costs and making real estate more appealing compared to other investments. According to James Seppala, head of European real estate for Blackstone, the world's largest commercial property investor, “The mood has definitely shifted in the UK," with more activity and increasing participation from investors.

However, office deals continue to lag behind the broader recovery. UK commercial property deals rose 26% year-over-year in the second quarter, while they fell in France and Germany. Prices are also expected to increase by 2% this year in the UK, outpacing declines in the eurozone and the U.S., according to Capital Economics. Still, office sales are down 21% year-to-date, with no deals exceeding £100 million in the first half of the year—something not seen since 1999. Office vacancy rates also remain high, reaching 10.1% in London, the highest in over two decades. In the Docklands area, the rate is nearly 17%, and Canary Wharf Group is considering converting unused office space into hotels.

Many investors are gradually accepting lower prices, and some may be forced to sell due to high refinancing costs. Foreign buyers, however, see opportunities. Fiona Voon, head of real estate capital markets at BNP Paribas, notes that international investors view the UK as a stable and attractive investment location, and are eager to act before prices rise.

Among domestic investors, Schroders plans to invest hundreds of millions of pounds in British commercial properties over the next two years, including prime office spaces. The asset manager also reported growing interest from investors in the Middle East, Asia, and Australia. Schroders is preparing to begin discussions with potential tenants for its planned 63-story office tower at 55 Bishopsgate in London. According to Nick Montgomery, Schroders' global head of real estate, “Offices have been seen as risky, but we view the current market as an opportunity. The pendulum always swings too far in either direction.”