City job losses hit office rents

City job losses hit office rents

By Daniel Thomas, Property Correspondent

Published: May 1 2008 18:24 | Last updated: May 1 2008 18:24

Hammerson, the property developer, warned that job losses in the City of London were having an impact on demand for offices in the financial district.

Hammerson blamed banks reducing staff numbers at a time when development completions were increasing the supply of new space.

This, it said, had caused rents to soften. There had also been a weakness in demand for offices in the business district in Paris. The shares dipped 13p to 995p.

The company has completed two lettings at its office building at 125 Old Broad Street in the past quarter, one to real estate adviser DTZ at just £53.50 a square foot, which is seen as a low rent in the sector.

Property agents have warned that there are further falls to come in City rents. Last week, CB Richard Ellis said that rents on top quality office space could fall to £52 a square foot by next year, which could have a knock-on effect on property prices.

There was one piece of good news on Thursday, however, after Standard Bank of South African confirmed plans to relocate to Hermes Real Estate and City Offices’ 20 Gresham Street development in the City of London. It is expected to pay more than £57 a square foot.

Hammerson said that the banking sector remained cautious about advancing loans to commercial real estate, which meant that activity remained restricted. There were further declines in UK property values in the first quarter of the year, it said.

In France, the office investment market has also shown some signs of softening, although values of retail assets have been more resilient.

John Nelson, chairman, said Hammerson was in a good position to weather market uncertainties and take advantage of opportunities that may arise.

The company said many retailers in the UK were continuing to face challenging conditions owing to weaker consumer confidence affecting retail spending, but said that vacancies in its own retail property portfolio were low, at about 2.6 per cent.

There are major retail schemes in Bristol, Leicester and Paris opening in September this year that, by rental income, are 83 per cent, 73 per cent and 85 per cent let.

Hammerson’s downbeat comments on the retail sector came as a downgrade by JPMorgan of rival shopping centre owner Capital & Regional sent its shares down 56½p to 376¾p.

The analyst said there were concerns that its Mall fund was close to breaching its loan-to-value covenant.