U.K. REITs cut to “underperform” as debt risks weigh on returns: Jefferies

Published 10/07/2025, 13:40
© Reuters.

Investing.com -- Jefferies has downgraded Land Securities (LON:LAND) and British Land (LON:BLND) to “underperform,” citing structural debt risks and weakening returns across the U.K. REIT sector. 

Price targets were reduced to 492p from 556p for Land Securities and to 298p from 364p for BLND, reflecting margin pressures and reduced investor confidence.

Land Securities’ pivot to the build-to-rent sector is seen as high-risk due to the execution challenges of organic platform development and lower yield potential. 

Its £135 million greening budget was also flagged as insufficient relative to its portfolio scale. 

Meanwhile, British Land is losing balance sheet control through asset sales into joint ventures and is entering logistics and life sciences late and at a high cost. Its 32% weighting in retail warehouses was identified as a relative positive.

Sector-wide, Jefferies raised its weighted average cost of capital (WACC) to 11%, the highest since 1998, while portfolio returns are expected to average just 6%. 

The brokerage noted that REITs are not earning their cost of capital, and negative leverage persists, with property yields below financing costs. 

Public REITs, which hold less than 5% of the commercial property market, remain price takers in a broader system still grappling with post-pandemic value discovery.

Office assets are particularly pressured, with values down 35% since 2020 and investment volumes 75% below the 10-year average. 

Bid-offer spreads remain wide at 15–20%, and refinancing challenges have stalled transactions. 

Jefferies expects continued underperformance in non-prime offices, while premium assets retain limited support from sovereign capital.

Jefferies’ economic rent model shows a 5% decline spread between expected returns and WACC, supporting an implied 30% discount to NAVs.

The brokerage argues that while REIT share prices may appear cheap, they do not reflect attractive value due to deteriorating fundamentals. 

Concerns over the encashability of NAVs and a cautious debt market have further curbed optimism.

The brokerage also notes a slowdown in M&A activity, with fewer viable targets and a narrowing gap between offer prices and undisturbed NAVs. 

Recent deals, such as Long Harbour’s discounted offer for PRS REIT, illustrate growing caution in the private market, driven by financing constraints.

Jefferies’ outlook is bearish across much of the U.K. REIT landscape. It sees little room for rerating unless interest rates fall significantly or earnings materially improve. 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.