FTSE 100 Index Influences London Office Rent, Says Morgan Stanley
UNITED KINGDOM – Morgan Stanley analysts expect rent of prime office space in the City of London to increase over the next 12 months due to a newly discovered correlation with the FTSE 100 Index, reported Bloomberg on Friday morning (27 January, SGT).
Analysts at the American investment bank uncovered a correlation between the blue-chip index and the cost of renting office space in the UK’s capital that has held true for around 30 years.
In particular, they found out that the growth or contraction in prime office rents in London tend to track the gains in the FTSE 100 Index in the previous year.
In 2022, the blue-chip index inched up by 4 percent, outperforming most major indexes due to the former’s high exposure to upwards-trending energy stocks and share values.
Office “rental markets are driven by demand more than by supply, and demand is driven by confidence. And the stock market is arguably a pretty good confidence barometer,” explained analysts including Bart Gysens in a research note published on Thursday (26 January).
But at present, commercial property investors and economists are discussing the extent to which real estate valuations and rental costs could fall as the UK enters an expected recession due to rising interest rates and a cost-of-living crisis.
Still, if the correlation discovered by the Morgan Stanley analysts pans out, the rent of 1 sq ft of office space in London would increase to around £77.60 by the end of the year, based on the correlation formula of the FTSE 100 Index’s current value divided by 100.
