London office market hit by credit crisis fallout

Business Times - 24 Apr 2008

London office market hit by credit crisis fallout

Rents, occupancy rates, sale prices may worsen if crisis continues: Moody's

(LONDON) London's office market faces 'imminent stress' as the fallout from the global credit crisis weakens demand for space in the city's financial district, Moody's Investors Service said.

Conditions in the City of London deteriorated faster than any other European market last year, Moody's analysts wrote in a report on commercial mortgage-backed debt yesterday. Rents, occupancy rates and sale prices may worsen if the credit crisis continues and the supply of property increases, the New York-based ratings firm said.

Banks and securities firms may cut as many as 40,000 jobs in London in the coming months, according to forecasts by analysts at JPMorgan Chase & Co.

About 7.3 million square feet of office space is due to be completed in London this year with a further 8.3 million square feet available by 2010, CB Richard Ellis Group, the world's largest realtor, said in a April 21 report.

'We regard the growing supply pipeline to be an important threat to the European office occupation markets,' wrote Moody's analysts Rod Bowers and Jeroen Heijdeman in London.

'In addition, occupier demand could be negatively affected if the financial turmoil in the global market continues for the next few quarters.'

Moody's report scores cities out of 100 based on factors including vacancy rates, the demand for property and expected supply.

The analysis covers 24 European office markets including Paris, Munich and Barcelona. The average score fell to 61 from 64.

The City of London's score dropped to 20 at the end of 2007 from 53 a year earlier. A level of 33 or below indicates markets under 'imminent stress' where supply is outstripping demand, usually coupled with rising vacancy rates, CBRE said.

Paris' La Defense financial district, previously the highest-ranking market, fell to 67 from 88. Dublin scored worst at 15, though up from 0 a year earlier.

Conditions improved most in Edinburgh, which rose to 88 from 59, making it the highest-scoring market. Any city scoring above 67 is considered 'basically sound,' with demand for property typically outpacing the growth in supply, the analysts wrote\. \-- Bloomberg



Sign of the times: About 7.3m sq ft of office space is due to be completed in London this year

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