Office Commercial Mortgages London

Underwriting a London office commercial mortgage

London holds the deepest office market in the United Kingdom by a wide margin. The published floorspace series puts Greater London at around 26.7 million square metres, with the City at roughly 7.7 million, Westminster at 5.8 million, Camden and Islington together at 2.3 million, Canary Wharf at 2.1 million and Lambeth and Southwark at 1.8 million. Those numbers date from 2001 and we use them only to show the relative scale of the sub-markets, not as a current stock figure. The scale point stands: the City of London alone employed over 500,000 people as of 2019 against 8,583 residents in 1.12 square miles, and Canary Wharf carries around 16 million square feet of office and retail space with roughly 105,000 workers and the head offices of over 150 major businesses.

For a commercial mortgage broker the market splits into four practical bands. Institutional prime in the City, Canary Wharf and the core West End, where single assets run well into eight figures and the debt is arranged directly rather than brokered. Good-quality mid-cap investment between roughly £2M and £25M, which is where we work most. Secondary and tertiary stock across the City fringe, Shoreditch, Clerkenwell and the outer boroughs, typically £500K to £3M. And owner-occupier purchases by professional firms buying the floor or the building they already lease.

Investment underwriting tests ICR at 140 to 155% on let stock, and tenant covenant carries more weight here than in any other sector. Five years unbroken to a corporate covenant prices materially inside the same building let on rolling two-year terms to small firms. Multi-let assets with staggered renewals price at the wider end because the income is genuinely more volatile. Owner-occupier office routes through the EBITDA-cover product at 1.3 to 1.5x: the law firm buying its Bloomsbury townhouse, the practice taking the freehold of the floor it has leased for a decade, the consultancy converting rent into a repayment mortgage. LTV to 75% on bricks, rates 6.0 to 7.5% pa.

The live issue in London office lending is the refinancing problem on secondary stock. Occupiers have concentrated demand into best-in-class buildings, which has pulled rents and values apart between prime and everything else, and London shows that gap more acutely than any other UK market because it has the most old buildings competing with the most new ones. Assets bought and geared before 2022 are coming off fixes into a lower valuation, and the loan amount that a 140% ICR now supports is often below the debt already outstanding. That is a solvable problem, but it is solved with a capital injection, a term extension, a partial repayment or a repositioning bridge, not by pretending the valuation will come back. The proposed EPC B minimum for commercial lettings by 2030 sits underneath all of it and is the reason lenders now want to see a capex plan alongside the rent roll.

Finance structures for London office

Let stock routes through a commercial investment mortgage on ICR. Owner-occupiers route through the EBITDA-cover product. Vacant, part-let or repositioning assets route through commercial bridging with an agreed term-out. Multi-asset office holdings consolidate through portfolio refinance at 6.5 to 8.0% pa.

Lender appetite for London office

Appetite is strong on well-let stock with corporate covenants and more than five years unexpired, and it is genuinely competitive at that end. It is mid-strength on multi-let buildings with staggered renewals. It is tightest on vacant or part-let secondary stock, but that is fundable through a bridge with a credible refurbishment and letting plan rather than being a flat decline. NatWest, Lloyds, Barclays and Santander compete on prime and good secondary investment at 6.5 to 7.5% pa at 65 to 70% LTV. Shawbrook, Allica, Hampshire Trust, Cambridge and Counties and OakNorth cover the mid-market at 7.25 to 8.0% pa. InterBay Commercial, LendInvest and Cynergy Bank handle short-lease, multi-let and repositioning cases at 7.75 to 8.5% pa. Owner-occupier professional-firm purchases sit at the keenest pricing available on any office deal, 6.0 to 7.5% pa, because the lender is underwriting a business it can read rather than a lease it has to guess at.