Abroad, CMBS Performance Mixed

MBA (10/14/2008 ) Sorohan, Mike
The commercial mortgage-backed securities market might be stagnant in the U.S., but in Europe, markets show a broader mix in performance.
Moody’s Investors Service, New York, reports continental European office occupational markets that support CMBS have on average performed better than the U.K. markets in the past 12 months. The Moody’s Red-Yellow-Green Report found four of 17 continental European markets showed improved scores and three remained unchanged compared with year-end 2007, while six out of seven U.K. markets deteriorated.

The semi-annual update of Moody's report includes 24 major European office markets, including London, Paris, Barcelona and Munich.

"The apparent split between the U.K. and Europe is most likely a result of the greater exposure of the office occupiers in the U.K. to the credit-crunch, which has been most pronounced in the London City and London Docklands markets," said Jeroen Heijdeman, a Moody's analyst and co-author of the report.

Between mid-year 2007 and mid-year 2008, the weighted-average composite score for the European office markets covered by Moody's analysis decreased to 56 from 63, putting them solidly in the “yellow” market.

Moody’s said the downward movement in the composite score resulted mainly from negative reclassifications of six out of the 24 markets analyzed. The number of red markets increased to six from two over the 12-month period. In total, Moody’s reported six red markets, 10 yellow markets and eight green markets. London Docklands followed by London City showed the most significant market deterioration.

"It is noteworthy that all three London office sub-markets showed further signs of deterioration for the third consecutive time," said Oliver Moldenhauer, a Moody's assistant vice president and co-author of the report. "This is mainly due to a decline in projected take-up levels.”

The most improved occupational market conditions over the 12-month period was the Paris central business district, which at 83 has the highest score of any market.

The report highlights that a “continuation of the recent turmoil in the capital markets and the expected knock-on effects on the real economy will most likely result in further deterioration of the office occupational markets. Such events have so far only been included in the data set to a limited extend.”

The full report can be found on www.moodys.com.