The core London office market has cooled since the UK’s EU referendum but remains highly overvalued, Fitch Ratings says.

Tight office supply has supported prices to some extent, while sterling’s weakness has caused a recent boost in overseas demand for trophy assets, allowing City office yields to fall back slightly in 2017. But uncertainty associated with Brexit is likely to see the cyclical correction resume during 2018, says the ratings agency.

Fitch reports: ‘Longer term, the potential for rising interest rates presents considerable downside risk. Office values began to fall just before the June 2016 EU referendum. Property transaction volumes have risen this year on the back of the record-breaking overseas acquisitions of 20 Fenchurch Street (£1.3bon) and The Leadenhall Building (£1.2bn). Purchases are being funded by significant foreign equity, rather than debt, partly in response to the post-referendum fall in sterling.

‘The responsiveness of new office supply to lower demand may cushion one likely Brexit impact, namely the loss of financial sector jobs as global occupiers reduce their UK presence. Bloomberg reported last month that up to 13,000 London banking jobs were slated to move to the EU after Brexit.’