London Office Developers Fall after Downgrade

London office developers Derwent London PLC (DLN), Great Portland Estates PLC (GPOR), and Land Securities Group PLC (LAND) have fallen in London trading following the decision by BofA Merrill Lynch Global Research to downgrade all of their ratings.

Land Securities, which is the biggest real estate investment trust in the United Kingdom in terms of market value, dropped by as much as 3.9 per cent, while Great Portland fell by 2.9 per cent and Derwent by 2.5 per cent.

“It may be appropriate for the sector to trade at a premium in anticipation of growth”, the BofA Merrill Lynch team led by Berndt Stahli told investors last week. “However, in the current economic climate, where growth is absent, we believe a premium is hard to justify.” The report issued by the company states that growth in the office space market in London appears to be disappearing fast, with retail unlikely to make much of an impact, and notes that it would “probably be prudent” to ensure that ambitious projects such as the likes of the “Walkie-Talkie Tower”, the 37-storey skyscraper being constructed by Land Securities, had tenant agreements in place prior to development rather than being what are known as speculative builds.

Even Derwent, which the BofA Merrill Lynch report admits has a management with a solid track record and a strong balance sheet, was downgraded due to the expectation that capital growth in offices in London is expected to stall.


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