Property shares continued to slide this morning as the industry digested news that Lehman Brothers’ property analysts Mike Prew and Chet Riley had called time on the ‘gold rush’ in the property investment market.
In a punchy note issued yesterday afternoon, Prew and Riley said they had downgraded the sector to neutral after three-and-a-half years of yield shift and REIT repricing, which the pair believe has now come to an end.
Shares in British Land, Land Securities and Brixton fell by around 2.5% in pre-lunch trading today, while Segro and Liberty International slipped by 1.7% and 1.4% respectively. Hammerson’s shareprice, which has been boosted by takeover rumours during the first quarter of the year, experienced the biggest fall of 2.9%.
‘The cycle is now adjusting to lower and slower levels of returns befitting real estates’ low risk characteristics,’ the report read. ‘Highly indebted investors holding sub-prime stock with weak rental prospects can expect a bumpier landing than those holding prime buildings let on long leases which we think are on a gentle glide path down to yield equilibrium. The ascent of asset prices has been coupled with the descent of risk, but bonds are moving against real estate.’
Lehman Brothers’ have slashed their estimates for NAV growth in the UK from 13% to 9% this year. Casting doubt on the long-term positive impact of the introduction of REITs on the wider property market, the note suggests REIT share prices will continue to track NAV rather than trade at a healthy premium as others predicted. Prew and Riley also said they felt direct property offered greater value to investors than REIT shares.