(Bloomberg) -- Offices in London’s West End theater and shopping district should yield better rental returns than those in the British capital’s traditional financial area due to their tight supply, according to Goldman Sachs Group Inc.

Analysts at the investment bank say the City of London is due for more concentrated new office space than core West End areas like Mayfair and Soho. It upgraded its call on two stocks wtith signficant exposure to the West End: Derwent London Plc to buy from neutral, and Great Portland Estates Plc to neutral from sell.

“Our analysis leads us to conclude that West End market locations, particularly core, are set to deliver better fundamental asset performance than we previously anticipated,” analyst Tom Musson said in a note, adding that those areas will also benefit from interest rates potentially reaching a peak.


Remote working, rising interest rates and worries over a potential recession in the UK have put pressure on the City of London’s office market, with JPMorgan Chase & Co. analysts recently predicting that office buildings in the capital’s financial heart will lose 20% of their value this year.

Shares in Derwent London and Great Portland Estates rose as much as 3% Friday before erasing gains as European real estate stocks fell more broadly.

--With assistance from Thyagaraju Adinarayan.

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