Property shares are likely to suffer today after Lehman Brothers released a gloomy research note on the sector.

Lehman Brothers analyst Mike Prew said that after the ‘short sharp shock’ in prices, the same will be seen in rents, with the phrase ‘over-rented’ to ‘re-enter the property vernacular’.

The sector was downgraded to neutral from positive.

Lehman said it expected City of London office rents to fall by 15%, with retail warehouse rents to fall 10%.

Hot potato

‘The industry’s ‘hot potato’ this year is, we think, the rental growth assumptions factored into property and REIT share prices,’ Prew said. ‘Post the ‘short, sharp shock’ correction in cap rates (mostly) through 2007, we expect a similar rapid repricing of City of London office and retail warehouse rents.

‘There is certainly waning confidence with occupiers already holding back on space decisions until there is some clarity about the effect of ‘global cooling’ on their business, as they think they may get better deals on space in six months’ time.’

Estimates down

Lehman has dropped its estimates for 2008 net asset value on UK REITs by an average of 5%, and reduced its share price target by 8%.

Today it downgraded British Land to underweight from equal weight, and downgraded Great Portland Estates and Derwent London to equal weight from overweight. Brixton was upgraded from equal weight to overweight.