JP Morgan sees rents falling as it cuts ratings for commercial property

21st Jan 2019 11:50

(Sharecast News) - JP Morgan Cazenove has downgraded a host of European property companies, including FTSE 250 firm Hammerson, as the UK retail sector continues to battle weak consumer sentiment.The bank, which last downgraded the sector in September 2018, said in a note published on Monday that it was factoring in even lower rental growth for European retail property owners."This is due to the deterioration in UK retail news flow which accelerated through Christmas 2018 and into the new year," it explained. "We believe that buyers of malls will increasingly incorporate expectations of negative future rental growth into their forecasts, which will be reflected in outward yield shift going forward."It added: "We also reflect investor risk appetite for listed retail companies by taking a more conservative capital structure for our [weighted average cost of capital] estimates."The UK's retail sector has struggled as uncertainly around Brexit curtails consumer spending despite high employment and accelerating wage growth. A number of big-name retailers, including John Lewis, Marks & Spencer and Debenhams, have reported disappointing festive seasons, while HMV called in the administrators three days after Christmas.In November, shares in Intu Properties - owner of Old Trafford in Manchester and Lakeside in Essex - plunged after a consortium blamed macroeconomic uncertainly and "volatility across markets" for walking away from a £2.9bn takeover offer.The Royal Institution for Chartered Surveyors has even taken the unusual step of warning valuers to be aware of potential for "significant changes in value" when valuing retail properties. According to The Sunday Times, RICS issued the guidance in December.RICS also told valuers to be aware of "seismic" shifts in shopping habits, as shoppers continued to abandon bricks and mortar for online rivals, leaving retailers eager to get out of costly, long-term leases.As well as Hammerson, owner of the Bullring in Birmingham, European retail owners downgraded by JP Morgan Cazenove include Shaftesbury, which owns properties in London's West End, and in-town shopping centre operator Capital & Regional. All were cut to 'neutral' recommendations. Overall, JP Morgan Cazenove said it had downgraded price targets by an average of 13.9% for 20 stocks.As at 12.30pm GMT, shares in Hammerson were off 3%, Shaftesbury was flat at 837p and Capital & Regional was unchanged at 29p.