‘Stars are aligning’ for UK property stocks, Morgan Stanley says

London: British real estate stocks could be flipping the script on a “lost decade,” according to Morgan Stanley analysts, who have the UK as their preferred region in the European property sector amid signs of a pick-up.

“Confidence is returning, balance sheets are healthy and assets have been marked down,” analysts including Bart Gysens and Ana Escalante wrote in a note, upgrading their view on the broader European property sector to attractive. “We are unequivocally bullish on UK Reits,” they added.

UK property has struggled in recent years as higher interest rates have raised mortgage costs for borrowers and put pressure on a heavily-indebted sector. A weakening economy has also seen commercial valuations fall. The FTSE 350 Real Estate Investment Trusts Index is down 1.7 per cent this year, compared with a 2.9 per cent gain for Europe’s Stoxx 600 Real Estate Index.

Hopes are growing that the sector’s woes will begin to ease with the Bank of England carrying out its first interest rate-cut since the pandemic last month.

Morgan Stanley said there are signs that UK Reits could be entering the next cycle, citing equity raises, deal-making and strong operational performance. Elsewhere on Monday, Rupert Murdoch’s REA Group said it was considering a possible bid for property portal Rightmove, sending shares in the UK company soaring as much as 25 per cent.

Recent data has also provided reasons for optimism. While Nationwide said that UK house prices unexpectedly fell in August, figures from the Bank of England showed that mortgage approvals climbed, pointing to a stronger autumn.