MARKET REPORT: UK commercial property facing £14bn price crash

Goldman Sachs has sounded the alarm over commercial property in the UK, warning that the sector could face a crash fueled by rising interest rates.

The investment bank predicted that values ​​across the sector could fall by 15 to 20 percent between June this year and the end of 2024, effectively wiping the portfolios of some of the industry’s biggest players by up to £14bn.

Goldman analysts said the sharp “price correction” would be the result of rising borrowing costs, as Bank of England rate hikes made it more expensive for developers to take out loans.

The bank added that as a result of the bleak outlook for the economy, retail landlords would come under “renewed pressure” in the next 12 months as consumer-oriented businesses faced a slowdown in demand due to the shortage of supply. the cost of living.

The Wall Street giant also pointed to an “increasing risk of vacancy” as some companies went bankrupt, and warned that rising energy costs for its remaining tenants would not be displeasing to landlords with small profit margins.

“The overall impact of rising energy costs may be small, but for lower margin companies, we don’t think it will be insignificant,” Goldman analysts said.

Despite the bleak outlook, the investment bank said it was “not all doom and gloom,” noting that shares in both FTSE 100 group Segro (up 1.5 percent or 10.8 pence to 711.8 pence ) and mid-cap Derwent London (up 0.7 percent, or 13p, to 1920p) appeared ‘oversold’ after sharp declines earlier this year.

The bank added that weakness in the sector could increase the potential for mergers and acquisitions as buyers sought low-cost companies.

Despite Goldman’s warning, shares of London’s major commercial property companies rose after the recent sharp declines.

FTSE 100 company British Land gained 1.6 percent, or 5.3p, to 330.1p and rival Land Securities rose 3.1 percent, or 15.1p, to 504p.

Stock Watch – Zotefoams

Shares in Zotefoams skyrocketed as investors cheered for a strong trading update.

The company, which makes materials for footwear, insulation and packaging, reported record sales for the third quarter and said profit margins were pushed up by price increases.

Government support also reduced the risks associated with energy costs.

As a result, Zotefoams expected full-year earnings to be “significantly higher” than market expectations. Shares were up 24.5 percent, or 57p, to 290p.

But both companies are still struggling with brutal losses to date, with British Land falling nearly 40 percent and LandSec 35 percent since early January.

The FTSE 100 recovered and closed the day at 0.35 percent or 24.12 points to 6850.27 and the FTSE 250 rose 1.91 percent or 318.10 points to 16,929.26.

The blue-chip index went into the red for the seventh straight session as higher-than-expected US inflation data raised fears of sharper rate hikes by the Federal Reserve.

But after a recovery in US markets and reports that the government was considering cutting more parts of Chancellor Kwasi Kwarteng’s mini-budget, it recovered towards the end.

UK-focused banking stocks rose in hopes that the turbulence in UK markets could ease, with NatWest rising 7.7 per cent or 16.3p to 228.7p, Lloyds up 6.9 per cent or 2.68p to 41 .77p, Barclays up 5.1 percent, or 6.86p, to 142.54p and HSBC up 2.3 percent, or 10.2p, to 459.25p.

Oil prices were sluggish amid concerns that fuel demand will be hit by a global economic slowdown, a fear exacerbated by the prospect of ever higher interest rates.

The international benchmark Brent oil fell below $92 a barrel, but Shell shares recovered from an early decline and rose 1.5 percent, or 33.5 pence, to 2302.5 pence.

BP climbed 2 percent, or 8.9p, to 458.25p the day its electric vehicle charging company signed an agreement to support the fleet of London car rental company Addison Lee.

AB Foods, the owner of High Street retailer Primark, rose 2.9 percent, or 36.5 pence, to 1286.5 pence after it revealed its discount clothing store before the end of the year.