Shorter office leases, the rise of flexible space and pressure from all stakeholders embracing environmental, social and governance values are driving structural change in London office markets, JP Morgan said.
The broker, which has reiterated ‘overweight’ ratings for Derwent London PLC (AIM:DLN) and Great Portland Estates (LSE:GPOR) PLC, has what it calls a “super profit thesis” regarding London office space that it thinks points to a supply shortage increasing all the way through to 2025.
READ Time for investors to go back into London offices, says broker
“Our updated development model find that super normal profits of 30-45% of current market cap for Derwent London and Great Portland could be generated even assuming notable cost inflation scenarios. Our constructive stance is based on London office rents growing >6% for the best space, and an unprecedented supply crunch is tightening into 2025 (demand 1.8x supply) while more tenants are expected to seek new accommodation,” JP Morgan argued.