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London office market under threat from 'Brexit', says Deutsche

Lloyd's of London building and Cheesegrater
Deutsche remains cautious on capital's office market

Property stocks were under fire from Deutsche Bank as it warned of a potential corporate exodus from London after the 'Brexit' vote.

Deutsche downgraded Derwent London Plc (LON:DLN) and Intu Properties plc (LON:INTU) to 'sell', saying it remained cautious on the office market in the capital.

It also downgraded Land Securities PLC (LON:LAND) and Workspace Grp Plc (LON:WKP) to 'hold', although it upgraded Covent Garden owner Capital & Counties PLC (LON:CAPC) to hold.

It said it was premature to be relaxed on the potential impact of the referendum outcome.

Although the risks were already being priced in, Deutsche said it believed there was 30% extra downside to office-exposed shares.

The German broker said it saw several substantial risks to rents including the possibility of material office moves out of London due to the referendum.

It said in a note: "This has the capacity to increase vacancy to historical peaks and after speaking to numerous legal and political experts, we think this risk is under-appreciated."

Deutsche also cited macro-economic risk to demand for offices and developers adding to supply.

However, it said retail specialists such as Hammerson were still among its top buys.

Elsewhere, there were more downgrades as Jefferies International reduced Associated British Foods Plc (LON:ABF) to underperform after its trading update.

Jefferies said: "Despite the precipitous, FY IMS-triggered ABF sell-off, we remain concerned that the Primark investment debate will now revolve around

more normalised valuation criteria.

"With a third successive year of Primark margin falls now expected for 16/17, we value the division on 23x price/earnings and see double-digit downside to the stock."

Meanwhile, Citigroup downgraded HSBC Holdings PLC (LON:HSBA) to 'neutral'.


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