UK Real Estate Stocks on the Rebound: Morgan Stanley Sees a Bright Future Ahead

(Original title: Signs of recovery emerge, Morgan Stanley firmly optimistic about British real estate stocks)

Morgan Stanley analysts said that British real estate stocks may be reversing the “lost decade”. They see the UK as the preferred region for the European real estate industry because there are signs that the market is recovering.

“Confidence is returning, balance sheets are healthy and assets have been written down,” said Morgan Stanley analysts including Bart Gysens and Ana Escalante, who upgraded their overall view on the European real estate sector to “attractive.” They added: “We are unequivocally bullish on UK REITs.”

The U.K. property market has struggled in recent years as rising interest rates have increased mortgage costs for borrowers and put pressure on the debt-laden U.K. real estate sector. The weak economy has also led to a drop in business valuations. The FTSE 350 real estate investment trust index is down 1.7 percent this year, while the Euro Stoxx 600 real estate index is up 2.9 percent.

UK property stocks have struggled since 2022 ‘mini-budget’

Hopes are growing that the sector’s woes will begin to ease as the Bank of England cut interest rates last month for the first time since the pandemic.

Morgan Stanley said there are signs that U.K. real estate investment trusts may be entering their next cycle, citing strong equity fundraising, dealmaking and operational performance. On Monday, media mogul Rupert Murdoch’s REA Group Ltd. said it was considering a bid for real estate portal Rightmove Plc, sending the U.K. company’s shares soaring 25%.

Recent data also provide reasons for optimism. Although the Nationwide house price index unexpectedly fell in August from the previous month, data from the Bank of England showed that mortgage approvals climbed, pointing to a stronger performance in the autumn.