Lon­don’s boom­ing of­fice mar­ket in sharp con­trast to Paris’s sub­dued growth

Financial Mirror (Cyprus) - - FRONT PAGE -

Lon­don’s of­fice real es­tate mar­ket will see rapid growth over the next 12-18 months, while the Paris mar­ket will re­main sub­dued as a re­sult of on­go­ing slug­gish macroe­co­nomic growth, ac­cord­ing to Moody’s In­vestors Ser­vice. UK GDP growth has been much stronger than France’s in re­cent years, al­though Moody’s expects that this gap will nar­row in the longer term.

“We an­tic­i­pate that the pace of growth in Lon­don’s com­mer­cial real es­tate mar­ket will re­main brisk, aided by the strong econ­omy, reg­u­la­tory lim­its on new con­struc­tion and oc­cu­pier de­mand”, said Maria Maslovsky, a Moody’s se­nior an­a­lyst. “This will ben­e­fit UK-based firms, such as Bri­tish Land and Land Se­cu­ri­ties PLC”, added Maslovsky.

Moody’s notes that prime rents are grow­ing in Lon­don, record­ing a 5.8% in­crease be­tween 2010 and June 2015 in the West End, com­pared with a de­cline of 2.8% in Paris CBD. There is also a dis­par­ity in direct real es­tate in­vest­ment be­tween Lon­don and Paris, with in­vest­ment in Lon­don far out­pac­ing that in Paris, where less favourable rental growth, com­bined with lack­lus­tre eco­nomic growth lessens the in­cen­tives for new in­vest­ment.

Al­though the UK ex­pe­ri­enced a steeper con­trac­tion of GDP dur­ing the fi­nan­cial cri­sis in 2009, it has re­cov­ered strongly since 2012, whereas France’s GDP growth con­tin­ues to lag. Sim­i­larly, the un­em­ploy­ment rate in France was per­sis­tently higher through the fi­nan­cial cri­sis and shows no signs of abat­ing, while the un­em­ploy­ment rate in the UK has been trend­ing down since 2013. Still, Paris’s real es­tate mar­ket ben­e­fits from stricter per­mit­ting en­vi­ron­ment which pro­hibits raz­ing ex­ist­ing struc­tures.

Al­though the Paris mar­ket is see­ing a de­cline, es­pe­cially in large-block rental rates, Moody’s be­lieves pro­fes­sion­ally man­aged real es­tate com­pa­nies with di­verse port­fo­lios such as Gecina SA (Baa1 stable) and Fonciere des Re­gions (un­rated) will con­tinue to buck this trend and main­tain rel­a­tively high oc­cu­pancy rates. Sim­i­larly, Moody’s an­tic­i­pates strong leas­ing mo­men­tum for Land Se­cu­ri­ties and Bri­tish Land given their track record and the Lon­don mar­ket’s solid per­for­mance.

Be­cause th­ese of­fice com­pa­nies pru­dently man­aged their bal­ance sheets while pur­su­ing prof­itable growth op­por­tu­ni­ties, i mprove­ments in their per­for­mance will gen­er­ally trans­late into stronger credit pro­files. How­ever in the longer-term an in­crease in sup­ply or soft­en­ing in oc­cu­pier de­mand may pose risks.

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