European real estate: RBC sees long leases rising if recession hits
11/03/2022 12:49
** Weighing the impact of a deep recession on European real
estate, RBC sees the growing appeal of long leases, with
industrial landlords best off while office sector typically has
shorter leases on average
** "In the event of a deep recession we expect landlords'
leases to limit the near-term negative impact on their revenues
and thus earnings," it says
** Longer leases should rise in a recession, says the
broker, expecting the negative impact on landlords' rental
income to be primarily driven by tenant failures, departures at
lease breaks, and variable income
** It sees limited negatives on ongoing structural changes,
such as new working patterns, while demand/supply imbalance of
large size warehouse space is likely to ease
** The broker is sceptical about higher inflation benefits
for landlords overall, as higher costs would quickly diminish
growth returns and pressure earnings further
** Sub-sectors face different challenges in terms of
revenues, RBC notes, as retail and office markets may head into
recession with already record low vacancy risking disrupting a
fragile recovery
** Supermarket Income SUPR.L and Impact Healthcare's
IHR.L businesses are particularly well-placed to cope with
recession, the broker says
** Among RBC's "outperform" ratings, it also likes
LondonMetric LMPL.L and Tritax Eurobox EBOX.L , while
Klepierre LOIM.PA and Workspace WKP.L are among those with
likely bigger headwinds
** It upgrades German Vonovia VNAn.DE to "outperform" from
"neutral", citing its defensive qualities despite some share
price weakness
(Reporting by Dina Kartit)
((dina.kartit@thomsonreuters.com))