(Alliance News) - HSBC no longer has any 'buy' ratings in the UK real estate sector, and believes that the near-to-medium outlook is "particularly precarious."
The broker explained that UK real estate performance remains firmly wedded to policy rates, and that the prospect of a recession is now back on the table.
"The latest inflation data followed by the higher than expected increase in policy rates by the Bank of England and upward revision of peak policy rates by forecasters all point towards another round of asset price mark-downs across the real estate sector," HSBC said.
As a result, the bank has cut its net asset value forecasts across the board, reduced target prices and downgraded ratings.
HSBC said its target prices are all below consensus averages.
It estimates listed real estate equity is pricing in a further 20%+ fall in capital values, despite broad based rental growth still being present across the various sub-sectors.
However, HSBC said it thinks that a background of steeper increases in interest rates makes the negative risk to capital values and rental growth greater. It also pointed out the significant amount of pending refinancing risk into higher rates, particularly in offices and retail.
HSBC moved Assura, Big Yellow, Derwent London, Great Portland Estates, Safestore, Segro and Shaftesbury from 'buy' to 'hold'. It also moved British Land and Land Securities from 'buy' to 'reduce', and Hammerson from 'hold' to 'reduce.'
Price targets for Assure moved to 49 pence from 75p, Big Yellow to 903p from 1,250p, Derwent London to 2,144p from 2,622p, Great Portland to 424p from 558p, Safestore to 770p from 1,130p, Segro to 608p from 1,054p and Shaftesbury to 121p from 138p. Targets for British Land moved to 233p from 386p, Land Securities to 485p from 648p, and Hammerson to 12p from 24p.
By Jeremy Cutler, Alliance News reporter
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Assura (AGR)
Big Yellow (BYG)
British Land (BLND)
Derwent London (DLN)
GPE (GPE)
Hammerson (HMSO)
Land Securities (LAND)
Safestore (SAFE)