Deutsche Bank AG has turned bearish on London office landlords as falling rents may cause asset values and share prices to fall by as much as 30 percent, analysts including Oliver Reiff wrote in a note on Tuesday.
“We see the potential for vacancy rates to increase to previous peaks, driving a downturn,” the analysts wrote. “We also see the potential for a negative Brexit outcome to structurally impair the attractiveness and long-term trend demand of London.”
Office values in the City of London financial district fell 6.1 percent in July, the most in at least seven years, after Britain voted to leave the European Union, according to broker CBRE Group Inc. If banks and finance companies cut 30 percent of their London workforce following the referendum, about 9 percent of the U.K. capital’s office stock would return to the market, causing rents to decline, Deutsche Bank said in the note.
Financial services companies may not be able to put off decisions on relocation pending the outcome of Britain’s exit negotiations with the EU, the analysts said. “As such they may have to pre-emptively adjust footprints away from London.”
Deutsche Bank downgraded Derwent London Plc to sell and Land Securities Group Plc to hold. It maintained a buy rating on Great Portland Estates Plc because it owns stores and may sell assets.