European Property Stocks May Gain 20% on Valuations, JPMorgan Outlook Says

European real commercial estate shares may rise as much as 20 percent over the next year as investors buy stocks currently trading more than 25 percent below the value of company assets, JPMorgan Chase & Co. said.

Land Securities Group Plc, Capital & Counties Properties Plc and Alstria Office REIT-AG, JPMorgan’s top picks, may gain as much as 30 percent over the period, London-based analysts including Harm Meijer said in their annual property handbook published today.

“The glass is half full for the listed property sector,” the analysts said. “Most balance sheets are sorted out, most stocks own quality assets or have exposure to the ‘right’ sectors.”

U.K. real estate investment trusts have slumped 67 percent since their introduction January 2007. That’s even after they rebounded by more than 70 percent from lows reached in March last year. European property stocks tracked by JPMorgan are trading at an average 28 percent discount to net asset value, it said. That gap may attract generalist investors as well as specialists in real estate, Meijer said.

Shops and offices in London’s West End district have the best prospects in the next 12 months, according to the report. Retail property values in central London may rise by almost 5 percent a year until 2014. West End offices could increase more than 3 percent annually. Rents may surge by 47 percent in the West End and 45 percent in the City of London financial district over the period.

Shares Rise

Land Securities, which has 63 percent of its assets in central London, rose 3 percent in London trading today, the most in eight weeks. Capital & Counties, which focuses on shops in central London’s Covent Garden district, advanced as much as 0.6 percent to 118.2 pence, its highest since May 17.

Alstria, Germany’s first REIT focusing on offices, has a quality portfolio with long leases and managed to refinance without needing to sell new shares, JPMorgan said. The stock climbed as much as 3.8 percent, the most in six weeks.

In a worst-case scenario, such as deflation, property stock prices across the market could fall as much as 20 percent, JPMorgan said.

To contact the reporter on this story: Peter Woodifield in Edinburgh at pwoodifield@bloomberg.net.

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