Australia | Oct 19 2006
By Chris Shaw
The proposed merger between the Chicago Mercantile Exchange and the Chicago Board of Trade (BOT) is unlikely to be good for the office market in that city as it is likely to result in higher vacancy rates, property analysts at Merrill Lynch pointed out this morning.
This is a concern in the broker’s view as it sees the Chicago market as one where the landlord does not have pricing power, so any such loss of tenants is likely to worsen this situation.
The direct impact on Macquarie Office (MOF) is the trust loses around 1% of its portfolio income when the Mercantile Exchange moves into the BOT offices, leaving it to attempt to replace these rents. This may not be easy though as the broker estimates vacancy rates in the Chicago office market are around 17.9% currently, while the rental growth forecast of 2.7% annually over the next five years is below the national average of 3.6%.
The broker has not changed its Neutral rating but is adjusting its forecasts. It also gives a warning for shareholders in Tishman Speyer (TSO) as it notes the company has 28% of its portfolio in the Chicago market with 5% of its revenues set to expire next year, some of which are at rents 40-50% above market averages.
The FN Arena database shows the market shares the broker’s cautious view on Macquarie Office, with the stock rated as Buy just once compared to two Neutral ratings and five Sell recommendations.
MGQ is trading 7c lower at $6.53 today, while TSO is 1c lower at $2.44.