In the firm’s annual ‘Financing Property’ presentation, entitled ‘Beyond the crisis - what will be different this time?’, the firm said that while the UK lending market remains robust, volumes are down, reflecting the continuing low levels of London activity.

London office take up in Q1 2021 was 43% below average compared to 25% lower in the UK regions. London all sector investment in Q1 was 44% below average, compared to 14% higher than average ex-London where it has been driven by industrial and logistics transactions and recovering retail warehouse activity.

Ian Malden, head of valuation at Savills, said there is evidence of lenders becoming more picky, particularly regarding ‘short-income offices given the potential exposure to voids at a time where there is uncertainty around occupier intentions’. This uncertainty is a result of changing working patterns during the pandemic.

Mat Oakley, head of UK and European commercial research, said: ‘The big change this time is that London is not going to recover first, because of its dependence on mass transit..’  He added that CBD offices are normally the post recessionary safety play, but occupational trends are confused. ‘The question is still around offices, how offices will be used in future. I think we will return to the work place, but delivering the best work spaces is going to be expensive.’

Malden said that combined with rising construction and material costs and current concerns about inflation, it will inevitably reduce margins and impact overall affordability in terms of borrowing.  However, ‘the payoff is that schemes are likely to be future-proofed.’

Savills predicts the expected trend for a gulf to open up between prime Grade A properties and existing stock will continue and could present some challenges for financing and refinancing.

However, Malden said that lenders have the power to drive positive change to meet ESG and carbon neutral goals and they are ‘increasingly voting with their feet.’

Savills valuation director Becky Gaughan said ESG has become the priority for lenders in the last year: ‘there is an amplification of interest in it’, she observed. Savills expects UK targets such as energy performance certificate expectations to get tougher because the country is not on target to meet its 2050 net zero carbon emissions goal.

Oakley said that while investors are still ‘risk off’ now about London, Savills predicts this will change in the next 18-24 months when the capital will return to its position of growing faster than any UK regional city.

Retail ‘remains challenged in parts but there is rising recognition that retail is not all same; a more nuanced story will boost some parts.’