The European listed property sector is expected to continue to trade at a 'wide discount' to Net Asset Value this year after having shed as much as 10% over 2011.
The European listed property sector is expected to continue to trade at a 'wide discount' to Net Asset Value this year after having shed as much as 10% over 2011.
'Real estate is perceived as being part of the financial industry and as such it very much depends on the banking sector and the availability of credit. That's why stocks continue to underperform,' said Céline Donnet, an analyst with financial group Petercam in Brussels.
2011 was a year of carnage for most property securities. According to data provided by Global Property Research in Amsterdam, Poland, Spain and Italy were the worst performers, with declines of -66.2%, -58.4% and -43.7%, while Switzerland was the only country posting a positive result, with a 10.8% return over the entire year.
Looking ahead, market experts seem to agree that chances of a turnaround are slim for the near future. 'The sector is expected to remain flat in 2012 unless visibility improves from a macroeconomic standpoint,' Donnet said.
Analysts at Morgan Stanley, which in early January published a research note on the industry, expect the sector to see NAV declines of 11% in mainland Europe. 'More and more banks are suspending new lending to commercial property. Historically, property values and property stocks have not performed well when banks restrict loan availability,' analysts at Morgan Stanley wrote in the note. Shares will most likely retreat in line with NAVs, they added.
The New York-based investment bank is also forecasting a possible yield expansion of 100 basis points on the Continent. In the UK, real estate investment trusts are expected to record a 5% fall in NAVs and a 50 bps yield expansion.
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