Morgan Stanley maintains cautious stance on Paris office stocks

Morgan Stanley says Paris office stocks face offsetting forces: inflation (driven by higher oil) should boost rent indexation and support revenue in 2027–28, but weaker economic growth, record-high supply and low take-up will push vacancy rates higher and weigh on capital values and transactions. The bank flags negative reversion as passed rents (index-linked) diverge from market rents, making near-term earnings vulnerable. Debt-side risks are limited by widespread hedging — many continental European firms have in-place debt costs below 2% — though Morgan Stanley now models a 2 basis-point annual rise in average debt costs versus earlier estimates. The firm remains less constructive on French offices overall, while selectively overweighting Colonial for expected stronger EPS growth. It also notes AI-driven efficiency risks to office demand, leaving the sector outlook uncertain.