The London office market is deteriorating — and things are likely to get worse, according to Goldman Sachs Group Inc.

“We are increasingly cautious on the outlook for London office capital values,” analysts including Jonathan Kownator wrote in a note to clients, saying that deal activity in the sector has slumped near global financial crisis-era lows, while a spike in the supply of new offices will weigh on rental prices. “Sentiment toward owning office assets remains low,” the analysts said.

The property sector has suffered this year as interest rates have surged, while commercial and office real estate firms have also been grappling with the shift toward hybrid working models since the coronavirus pandemic. A looming wall of bond maturities — with real estate companies facing refinancing large debt loads at much higher rates — is also a big issue, Goldman said.

British Land Co., whose City of London tenants include UBS Group AG and TP ICAP Group Plc, last month marked down the value of its portfolio by 12%. The landlord was also demoted from the bluechip FTSE 100 index in May after its shares fell 35% in a year.

Goldman has a sell rating on British Land, while it downgraded West End office and retail property firm Great Portland Estates Plc to sell from neutral in today’s report, giving it the lowest price target among analysts tracked by Bloomberg. The shares fell 1.8% today, extending a drop over the past year to 26%.

--With assistance from Thyagaraju Adinarayan.