Markets pricing in too large an impact on REITs from Brexit

The real estate sector's main exposure was through London and offices in the capital, mainly via financial tenants in the case of the latter.

Markets appeared to be pricing-in a 'worst-case' scenario, with a 20% drop in property values built-in, UBS analyst Osmaan Malik said in a research note sent to clients.

However, there were several mitigating factors and "the uncertainty was likely to be worse than the reality," he added.

London only represented 55% of the total portfolio of the REITs under its coverage, the broker said, London offices just 32% and exposure to financial tenants was just 7% of their total combined rent roll.

At 17% British Land had the highest exposure of the lot to financial tenants and Derwent London the lowest at 2%, Malik said.

A 50 basis point outshift in yields as a result of Brexit would translate into an 11% correction in property values or 15% reduction in net asset values "all else equal", the analyst said.

However, should bond yields remain lower for even longer that would support real estate pricing and "significant" weakness in the poud might stoke inward investment.

Furthermore, any uncertainty might curtail speculative office development, reducing future supply, UBS said.