Morgan Stanley asks whether office stocks are 'overly discounted'

Analysts at Morgan Stanley sounded a positive note on European office stocks, pointing out various price signals that appeared to point to the group now being overly discounted.

On the basis of their latest monthly survey of work-from-home practices across the Continent, they saw ample signs of sustained demand from employees for WFH.

Nonetheless, the latest survey also showed that 79% of employees and 75% of office workers had already returned to work.

That was up from the last survey, which yielded results of 74% and 70%, respectively, "and average days at home are still decreasing".

Significantly, the UK continued to lag behind, with only 45% of workers having returned thus far.

And yet, over the last four months, the gap between equity market prices and those for underlying assets had reached "extreme" levels with office stocks across Europe now close to trough [net asset value] discounts .

Furthermore, some asset sales had been priced close to - in some instances even above - valuation and some private equity outfits had taken an interest, as seen by KKR's decision to take a 5% stake in Great Portland during the previous week.

"Our office Overweights remain limited to the strongest economies (Alstria) and/or nimble companies with strong balance sheets (Great Portland, Derwent); although other office stocks could also benefit from a sustained value-driven rally, or leverage-neutral buybacks (ie funded by disposals)."