While the coronavirus pandemic‘s immediate impact on the credit quality of European office real estate sector has been limited, the longer-term effect on demand is likely to be credit negative, Moody’s Investors Service said today in a new report.
“A recession in much of Europe will curb demand for office space, while lower consumption and business confidence will drive layoffs and erode occupier sentiment increasing credit quality risk over the next 12-18 months,” said Ana Luz Silva, Assistant Vice President – Analyst.
While social distancing may lead to larger space requirements and more flexible office setups in the short run, Moody’s believes that the longer term effects from a rising share of people working from home and the consequent decline in demand for physical space in urban areas will be on balance negative for office landlords.
Most companies went into the crisis with debt to asset and fixed charge coverage ratios which remain strong enough to withstand some deterioration without negative rating action.
Subscribers can access the report at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1231636