Shares in many of London’s major property firms sank after a broker warned the sector was facing its ‘toughest’ market in over a decade.
Analysts at Berenberg said spiralling inflation and an impending recession would increase the cost of debt, forcing firms to cut investment and delay new developments as they grappled with rising costs and lower demand.
‘The UK real estate sector is one of the most exposed to wider macro-economic factors… leaving it in the crosshairs of investors,’ the broker said.
Analysts at Berenberg said spiralling inflation and an impending recession would increase the cost of debt, forcing firms to cut investment and delay new developments
It added that while inflation would normally increase rent levels, contractual caps on rent hikes as well as lower demand due to the cost of living and lower profit margins for existing business tenants were ‘likely’ to reduce demand for commercial property.
‘The environment is certainly the toughest in over a decade,’ Berenberg said, saying it expected sentiment in the sector to ‘remain weak’ due to the gloomy picture across the wider economy. It downgraded a plethora of firms, sending their shares into the red.
Civitas was down 5 per cent, or 3.7p, at 71.1p while Great Portland Estates dipped 2.8 per cent, or 14.5p, to 498p, while Derwent London fell 0.7 per cent, or 16p, to 2436p.
Helical dropped 2.4 per cent, or 9p, to 390p, LondonMetric Property slumped 3.6pc, or 8.2p, to 217.2p, Supermarket Income REIT was off 2 per cent, or 2p, to 121p, Tritax Big Box eased 3.3 per cent, or 5.7p, to 166.5p, Urban Logistics REIT lost 0.6 per cent, or 1p, to 170p and Warehouse REIT fell 1.6 per cent, or 2.6p, to 154.8p.
The FTSE 100 tumbled 1.05 per cent, or 77.48 points, to 7284.15, while the FTSE 250 slipped 0.45 per cent, or 85.90 points, to 19,063.75.
Markets continued to be weighed down by inflation and rising interest rates as more signs emerged that the global economy was stuttering.
Eurozone inflation hit a high of 9.1 per cent this month amid soaring energy costs, piling further pressure on the European Central Bank to raise interest rates.
Meanwhile, the Chinese manufacturing sector posted its second consecutive month of decline in August due to a slowdown in consumer demand and the effects of lockdown measures.
‘Beijing’s strict zero-Covid policy is still causing a huge headache for factory owners given that sporadic outbreaks of the virus are met with strict containment measures, limiting movement and disrupting supply chains,’ said Hargreaves Lansdown analyst Susannah Streeter.
The data weighed heavily on oil prices, with Brent crude dropping to below $97 a barrel amid fears of falling demand.
Shell was down 2.1 per cent, or 49.5p, to 2290p while BP slumped 1.7 per cent, or 7.75p, to 441.5p.
Energy providers also weighed on the blue-chip index, with National Grid 4.1 per cent, or 46.5p, lower at 1078p and British Gas owner Centrica losing 1.1 per cent, or 0.82p, to 75.74p.
Engineer Carr’s Group gained 3.5 per cent, or 4.5p, to 133p after selling its agricultural supplies business for nearly £45million to food firm Edward Billington & Son, a deal that allows it to focus more on its speciality agriculture and engineering divisions, which provided higher profit margins in the past.
Egg-free cake maker Cake Box plunged to its lowest level in over two years after a grim profit warning. Trading was ‘significantly more challenging’ over the last two months amid rising inflation.
It predicted that full-year profits will be ‘significantly below’ forecasts. The shares crashed 29.9 per cent, or 53.5p, to 125.5p.
Elsewhere, Irish hotel firm Dalata was flat at 295.5p after reporting a profit of £45million for the first half of 2022 compared to a £33million loss in the same period last year as business activity passed pre-pandemic levels.