London landlords could rally 10% as Brexit uncertainty clears up, says Morgan Stanley
London
LONDON office property stocks, including British Land and Land Securities Group, may rally a further 10 per cent as the demand for UK assets rises and as the country's economy accelerates, say analysts at Morgan Stanley.
London office owner shares have rallied from lows in August after posting robust results and as the prospect of a no-deal Brexit has receded, but there could be further gains of 5 per cent to 10 per cent, the broker said, raising four UK landlord stocks to overweight.
Analysts led by Christopher Fremantle wrote in a note to clients: "Our conviction in a better rental and capital growth trajectory in 2020/21 is increasing."
The analysts say demand for UK assets will continue to recover as the Brexit picture gets clearer and the economy grows.
They now see annual rental growth of 2 per cent to 2.5 per cent for the next couple of years, up from 1 per cent previously.
This could rise to around 5 per cent if more specific concerns around the challenge posed by flexible office space and excess supply abate, the analysts predicted.
The office sector has been continually surprised at how well London offices have held up against the backdrop of political uncertainty.
Businesses have continued to lease space and the latest round of earnings from the city's biggest landlords demonstrated the relative health of the segment in contrast to the weakness in UK retail property.
Morgan Stanley upgraded its recommendations on four of those landlords - British Land, Land Securities, Great Portland Estates and Derwent London - to overweight, with Derwent and Great Portland getting double-upgrades from underweight. BLOOMBERG
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