Property shares jumped today after a major investment bank said it expected prices to rise sharply in the first half of 2008.

In a note entitled ‘UK property shares – it’s so bad, it’s good’, Martin Allen, property analyst at Morgan Stanley, changed his outlook on the sector from ‘cautious’ to ‘attractive’, saying that he expected property shares to undergo a ‘short, sharp counter-trend rally’.

Short sharp rise

‘We expect UK property shares to rally by at least 20% in the first half of 2008 as the Bank of England is forced to cut UK base rates by around 100 basis points in an attempt to avert a recession,’ Allen said.

Brixton at 5.5%, British Land at 5.4%, and Segro at 4.7% were the biggest risers after Allen changed their buy rating to ‘overweight’ from ‘underweight’.

Not out of the woods

In the longer term however Allen, one of the most consistently bearish UK property analysts, painted a bleaker picture.

‘We anticipate that once this counter-trend rally has run its course, say in mid-2008, UK property shares could approximately halve in value over the following 18 months as an economic recession drags down market rents and precipitates the insolvency of many highly leveraged investors.’