UK property is now toxic, says asset manager British Land and Land Securities | Daily News Byte
[ad_1]
The UK commercial property sector has become a “toxic environment” for investors, according to Plurimi Wealth’s chief investment officer. Patrick Armstrong told CNBC’s Pro Talks that the real estate sector is “sensitive” to higher interest rates, which he believes will lead to lower property values and stock prices. Armstrong also revealed that he was betting against British Land and Land Securities, two of the largest property development and investment companies in the United Kingdom, by selling his shares short. Short sellers profit when the stock declines. They borrow shares to sell immediately with plans to buy them back to pocket the difference when prices are low. “We’re already in a recession in the United Kingdom. There’s more office supply than demand, and working from home has taken away some of the demand for office space,” said Armstrong, who oversees more than $6 billion in assets. “I think commercial property in the UK is in the most toxic environment you can imagine, with high rates, low property values and no prospect of rent growth.” Shares in British Land and Land Securities have fallen 23.1% and 18.5% respectively this year. In comparison, the FTSE 100 index, of which the two companies are a component, has risen 4.65% over the same period. Unlike Armstrong, equity analysts at UBS have buy ratings on both stocks. Additionally, price targets from the investment bank for shares of British Land and Land Securities offer upside potential of 17.6% and 9.2%, respectively. Neither company immediately responded to requests for comment from CNBC. Real-estate valuations, especially commercial property, are inversely related to their yields. Typically, such investments command a premium over the risk-free return of government bonds. With UK government bonds offering yields of around 3%, commercial property valuations have fallen to compensate for the rise in yields above sovereign gilts. British land now yields 7.1%, a full percentage point above its long-term average, according to UBS. The investment bank suggests that for every 0.5 to 1 percent rise in yields, values fall by 15-20%. The bearish sentiment has also been echoed by economists in Capital Economics. But they expect the fall in values to be much smaller this time than during the global financial crisis of 2007-2009. “We estimate a peak-to-trough drop of 10-15% over the next one year in both the UK and the euro-zone,” Andrew Burrell, chief property economist at Capital Economics, said in a note to clients earlier this month. . However, Burrell believes property prices in Europe will underperform due to a relatively worse recession on the continent than in the United States. “In Europe, by contrast, the contraction is deeper, with output topping 2%,” Burrell said, referring to the expected decline in GDP. “We also expect monetary easing to come later than in the US, delaying the recovery in economic growth and real estate values.”
[ad_2]
Source link
