FirstFT: European office market’s big test

Good morning. Europe’s office market faces the toughest conditions since the financial crisis, experts have warned, as rising interest rates and a surge in building costs threaten to choke off its recovery from the coronavirus pandemic.

Higher interest rates and tightening financial conditions have driven office owners’ costs of servicing their debt above their rental income for the first time since 2007, according to an analysis by Bank of America.

That is already cooling investment in the sector and could cause distress for highly leveraged office companies.

Rising base rates have added to owners’ debt servicing costs. But it is the tip of the iceberg, according to Marc Mozzi, BofA real estate analyst:

“When people are talking about interest rates, that represents only about a quarter of the cost of borrowing for European real estate companies”

Credit spreads, a measure of how much more a company has to pay to borrow compared with a sovereign issuer, have doubled for UK-listed real estate companies and almost tripled for European groups over the past year, indicating that bond investors are increasingly anxious about companies’ creditworthiness.

Happy Monday and thanks for reading FirstFT Europe/Africa. We hope you have a great week — Jennifer

Five more stories in the news

1. Battle lines drawn over search of Donald Trump’s home US lawmakers have demanded more information on the potential national security threat posed by the trove of classified documents found at Mar-a-Lago during the FBI search at the former president’s home. Trump is being investigated for serious violations of the law related to national defence, mishandling of government material and obstruction of justice.

2. Saudi prince made $500mn Russia bet Kingdom Holding, one of Saudi Arabia’s highest-profile investors that is majority owned by Prince Alwaleed bin Talal, disclosed yesterday that it poured hundreds of millions of dollars into Russian energy companies shortly before and after the invasion of Ukraine.

3. EU calls for end to war talk in Balkans Tension between Serbia and Kosovo have spilled over into violent protests and border disturbances, with Serbian president Aleksandar Vučić warning that the unrest was “a step away from catastrophe”. The EU and Nato are preparing to hold crisis talks in Brussels this week.

4. Germany must cut gas use 20% to avoid winter rationing Businesses and households are bracing themselves for Europe’s biggest energy crisis in a generation, with Germany’s top network regulator warning that gas use must be reduced by a fifth to avoid a crippling shortage after Russia’s Gazprom throttled supplies mid-June.

5. DR Congo opens energy auction to carbon credit and crypto groups The Democratic Republic of Congo will allow carbon credit and cryptocurrency companies to bid in an oil and gas licensing round that has been criticised by environmentalists, who said drilling in rainforests and peatlands would risk releasing vast quantities of carbon dioxide.

The day ahead

UK strikes Industrial action from criminal barristers in England and Wales, who have been striking over legal aid funding, continues today. More than 500 Unite members at Liverpool’s container ports will close their ballot for walking out in a dispute over pay and conditions.

One year of the Taliban in Afghanistan It is the first anniversary of the Islamist group regaining control of Afghanistan. The FT has published a series about how society and the economy have changed since.

Economic data Nigeria publishes monthly inflation data after the rate of rising prices and goods reached its highest level in five-and-a-half years in June. US Federal Reserve board member Christopher Waller delivers opening remarks to the 2022 Summer Workshop on Money, Banking, Payments and Finance, hosted by the central bank. (Bloomberg, FT)

What else we’re reading

Has the UK missed the semiconductor boom? At a time of renewed economic nationalism and pandemic-related supply disruption, the global chipmaking industry has been caught in a geopolitical storm. Western nations have responded by boosting domestic manufacturing, but Britain may be too late to the party.

Afghan roads once menaced by the Taliban are now safer — for men After toppling the western-backed government 12 months ago, the insurgents who previously imperilled travel routes in the country are now largely unchallenged, leading to a marked drop in violence on roads. But for women, draconian restrictions have severely curbed movements.

We’re getting closer to a world without animal testing Experiments on animals have long been the only permissible way to test drug safety — but many treatments that are effective in mice don’t work well in humans, and vice versa. Scientists are using new technology to grow miniature human organs for more accurate and humane research.

Polio virus reappears in rich economies After being nearly eradicated, polio has turned up in New York City, London, Israel and Ukraine. Data from the WHO and Unicef show the largest sustained decline in childhood vaccinations in three decades, raising concerns that vaccine hesitancy and global conflicts could allow the disease to make a comeback.

Arctic warming four times faster than rest of planet: study Scientists have for a long time known that the Arctic is heating faster than the rest of the planet, but have not agreed on a rate. The warming effect and long-term sea ice decline are considered two main indicators of climate change.

Books

Interest rate rises, galloping inflation and supply chain disruptions: the 15 titles longlisted for this year’s Financial Times Business Book of the Year shed light on some of the most pressing business issues.