The multi-billion-pound London offices market is set for further price falls as evidence emerges that big banks have put their requirements for large new lettings on hold for up to a year and are opting for short-term flexible leases.

The findings emerge from a survey carried out by MWB Business Exchange, an AIM-listed company with 25 serviced office buildings in the City, West End and Canary Wharf.

Banks and financial services companies have taken up to 80 per cent more flexible lease contracts between July and October than the third quarter a year ago, when the occupier market was healthy. Previously it has been more usual for banks to sign up to ten to twenty-year leases. The average term for the short flexi-leases has doubled to about 18 months.

Similar changes in leasing activity have been felt at Regus and Executive Office Group, MWB’s main London competitors.

The change in leasing patterns suggests that big banks are concerned that they may have to make significant job cuts over the coming months. A large loss of jobs would pull the rug from the offices occupier market in the capital, which would pull down the price of buildings.

John Spencer, chief executive of MWB Business Exchange, said that big banks and media companies had begun to change their leasing habits this August. “We think the large letting for banks will probably be delayed for up to 12 months. The view is that things may contract into 2008.”

Investors had been buying huge office blocks in the City and Canary Wharf this year on yields that were below the cost of debt, based largely on the hope that a surge in rental income would allow them to make up their returns. A drop in occupier demand is expected to cut short rent rises that were pencilled in to last until 2009.

Prices of new City offices are thought to have fallen between 5 per cent and 10 per cent since the spring as this summer’s credit crunch put buyer demand on hold. Highly leveraged buyers who had dominated the market for the past two years are out of the market.

The debt markets look set to remain closed to the commercial property market for many months, pushing up the cost of borrowing and refinancing.

HSBC is still sitting on an £800 million short-term vendor loan granted in April to the Spanish company that bought its Canary Wharf headquarters building for £1.1 billion The bank had hoped to refinance its loan through a securitisation this autumn, reducing its financial risk to the building in the process.

Stephen Green, chairman of HSBC, confirmed, however, that the loan was still on its books. The bank will not be able to book any profit on the sale until the loan is syndicated, he said.

Metrovacesa, Spain’s largest quoted real estate company, bought the building and agreed to lease it back to HSBC for £43.5 million on a 20-year term, with a five-year extension option. That is the equivalent of a yield worth just 3.8 per cent, less than the Bank of England’s base rate.

Similar well-let City and Canary Wharf office buildings sold on yields on average of between 4.25 per cent and 4.5 per cent in the spring but average yields have now slipped back to between 5 per cent and 5.5 per cent.

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