The cost of commercial leases is plummeting in the City of London. The big banks are putting their requirements for large lets on hold, and are opting for short term, 18 month leases, instead of the normal 10 to 20 years.

This is being seen as preparation for big layoffs at the major banks as the collapse of the financial system continues. This will hit rent prices and therefore property prices. City property prices are believed to have fallen already by 5 or 10% since spring, according to a report in The Times. A number of highly leveraged speculators who have in the last two years bought properties on yields that were below the cost of debt, based on the idea that price would go up, are all out of the business now.

HSBC, which sold its own office building in the Canary Wharf for 1.1 billion pounds, in fact loaned 800 million pounds to the Spanish real estate company that bought the building. Unfortunately for HSBC, they’re still sitting on the debt, and haven’t been able to sell it on thus far.

This entry was posted on Tuesday, November 20th, 2007 at 9:40 am and is filed under Economy, Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.