Working from home an opportunity for property groups suggests UBS

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Concerns about working from home are being overplayed and listed property companies set for a rally, according to UBS.


The broker has upped its price targets for seven London-listed REITS, including giants Land Securities (LSE:LAND) PLC (LON:LAND) and British Land (LSE:BLND) PLC (LON:BLND) as it says that those property groups with the best sites and a skillset to redevelop can thrive.


Views about the impact of working from home still remain mixed.


Only yesterday, Sir Howard Davies, the chairman of NatWest Group (LSE:NWG) PLC (LON:NWG), said Central London would never recover to how it was before Covid-19 due to the growth in home working.


In contrast to US banks that are insisting staff come back to the office, UK banks are scaling back their office requirements, he said.


“We are looking at having a minimum expectation of a few days a month where people will definitely have to be in the office, and then it will vary by teams, but I suspect there won’t be many people doing five long days in the office,” Sir Howard told Bloomberg.


Bruce Carnegie-Brown, the chairman of Lloyd’s of London and vice-chairman of Santander, thinks that view might be too extreme but he does see the hybrid model gathering momentum going forward.


Anecdotal evidence seems to be bearing out that theses. Services offices group Workspace PLC (LON:WKP) today reported that demand was now above pre-pandemic levels, with enquiries running at 947 a month on average in the three months to June or almost double a year ago.


Lettings too had almost tripled, with some businesses saying they are preparing to offer a combination of fixed and flexible space in future, which is helping its business said Workspace and its 60 sites dotted around London.


UBS says that in its view there will be undoubtedly an increase in the prevalence of WFH with a consensus emerging at the level of 1-2 days a week.


The broker though is sceptical this will lead to a 20-40% reduction in demand for office space due to structural constraints.


These include a limitation on hot-desking; of which frictional elements including capacity peaks and troughs during the week, job growth and change of use are just a few.


UBS also argues that office footprint rationalisation has in fact been in place for some time, with COVID-19 just marking an acceleration rather than the start.


Salary costs can also be 10 times higher than occupancy costs for office businesses, which on the assumption that the office is productivity-enhancing points to the rationalisation in office space primarily being part of staff reduction exercises.


Add in the bottom being called in some retail markets – such as UK retail parks for example – and UBS suggests a difficult five years for the listed property sector might be about to turn for the better.


Hammerson (LSE:HMSO) gets the biggest price target upgrade from UBS at 100% to 20p, but London-focused Capco, Derwent and Great Portland are also upgraded and get rises of between 13-15% and a buy rating.

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