HSBC has downgraded 11 property companies, including Landsec and British Land, warning of “another round of asset price markdowns across the sector”.
Landsec and the now FTSE 250 company British Land were both downgraded two steps by the bank from “buy” to “reduce” recommendations, the equivalent of a “sell” rating, with analysts warning the sector is facing a “particularly precarious” period.
Analysts said they now had no “buy” recommendations for UK property businesses as the economic environment of the first half of this year reversed the optimism that had been emerging at the end of 2022.
REITS have been the second worst-performing sector after telecoms on UK markets over the past year and remain significantly below 2019 levels. All property sub-sectors have performed poorly, although industrials and self-storage have not fared as badly as residential, office, retail and healthcare, HSBC said.
HSBC estimated a 20% fall in property companies’ portfolio values had already been priced in by investors and the “near-to-medium term looks particularly precarious”.
The industry is facing “more stress, but no distress yet”, the analysts added.
It warned, however, that there was a “significant amount of pending refinancing risk” as property companies had to refresh their banking arrangements and the industry was at the “forefront of the impact” of exposure to higher interest rates.
“Refinancing events could prove a tipping-point,” it said.
