Goldman Sachs downgrades Great Portland, Segro

The bank downgraded GPE to ‘sell’ from ‘neutral’ and cut the price target to 440p from 470p as it said it was cautious on central London offices.

GS noted that deal activity is near Great Financial Crisis lows. "We think this, together with approaching debt maturities, will continue to put upward pressure on yields," it said.

"In addition, we expect a spike in new office supply in 2023 (the highest since 2003) is likely to have a negative impact on ERV growth; our forecasts mostly sit toward the low end or below management guidance on ERVs and our office-exposed NTA estimates sit on average circa 2% and c5% below Visible Alpha Consensus over the next 12/24m."

GS said it prefers to position away from relatively higher LTV portfolios exposed to City offices and where it sees medium-term returns unable to overcome a higher cost of capital in this rising yield environment.

In the same note, it downgraded Segro to ‘neutral’ from ‘buy’ and cut the price target to 800p from 900p as it said it sees less upside after a period of outperformance.

"We believe valuation at a 14% discount to EPRA NTA/share reflects only an average (and negative) cash spread to weighted average cost of capital (which we increase by 35bps) versus UK peers," it said.

"In addition, we see risk of a softer outlook for leasing demand, including due to weak Manufacturing PMI data."

Goldman retained its ‘neutral’ rating on Landsec and Derwent.