Next year will see a reset for office prices, Jefferies equity analyst Mike Prew has said, adding that “ERVs are becoming as relevant as a ‘do not tumble dry’ label”.
Office values are “next in line for the estate agents’ red pen”, Prew said in a note published this week. In September, the investment bank downgraded the shares of Landsec, British Land, Derwent London and GPE, arguing that the London occupier market was at a “tipping point”.
“REITs need discount mitigation strategies,” Prew said in this week’s note. “Turning vacant offices into labs or selling to Blackstone aren’t viable business models, in our view.
“Share buybacks typically don’t deliver what is expected and are often unaffordable. Most REITs haven’t got surplus cash, shouldn’t, in our view, gear up, and selling buildings risks running down earnings quality, leaving them writing cheques their portfolios can’t cash.”
Prew added that offices were “likely to be the focus of refinancing risk, with the price-setters seemingly withdrawing as funds hunker down”.
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