Citi sees opportunity in UK real estate correction
Updated : 16:41
UK commercial real estate values were set to fall further, analysts at Citi said, but they believed the falls would only be a 'correction' - mostly cyclical in nature - and should be looked upon as a trading opportunity.
Nonetheless, they admitted the risk of a more severe property crisis existed.
"We are of the view that the UK and London will find a way to grow outside the EU and believe the current stock volatility is likely to continue providing investors with a trading opportunity," analyst Aaron Guy said in a research note sent to clients and dated 18 July.
In Guy's opinion, their was admittedly little "visibility" but so too many of the 'amplifiers' of the property crashes of the 1970s, early 1990s and 2007/2009, such as interest rates on the rise, high leverage and no immediate policy or liquidity tools were present this time around.
He also believed there was sufficient capital that held a positive view on the future of the UK to support a correction of between 15% to 20%, instead of a crisis.
"We currently estimate the risk of rescue rights issues and broader commercial real estate loan book distress to be low in what has been a risk off market."
Guy said Citi's view of a 15% to 20% correction was largely priced into stocks, so there was value in the broker's London-focused coverage, referencing as examples shares of Capital&Counties, Great Portland Estates, Derwent London, Land Securities and British Land - all of which he kept at 'buy' - albeit while at the same time lowering his target prices on many of them.
His target price on Capital&Counties was cut from 577p to 396p, that for Great Portland Estates from 1042p to 804p, for Derwent London from 4710p to 3257, on Land Securities from 1497p to 1268p and on British Land from 974p to 741p.
Intu on the other hand was downgraded to neutral and its target price slashed from 360p to 304p, alongside Segro, whose target went from 524p to 451p and Shaftesbury which had its target marked down from 1230p to 976p.