BofA cuts European property ratings; Tritax Big Box named top 2026 pick
Investing.com -- European real estate equities opened 2026 with a net negative shift in ratings as BofA Global Research recorded more downgrades than upgrades across its coverage, citing valuation moves, higher funding costs and sector dispersion, in a note dated Thursday.
The brokerage reported two upgrades and four downgrades among European REITs. LondonMetric and Shurgard were upgraded to "buy," while Colonial was double-downgraded to "underperform."
Segro, British Land and Great Portland were cut to "neutral" after strong share price performance and higher U.K. interest rates pushed asset yields above funding costs as rental growth normalized.
Colonial's downgrade was linked to negative book value growth driven by further cap rate expansion, which BofA said was weighing on net asset value.
Grand City Properties was rated "underperform" with a revised price objective of €9, down from €12, a 25% cut. Vonovia SE remained at "neutral," with its price objective reduced to €30 from €34, a 12% decrease.
Among buy-rated names, Aedifica carried a price objective of €85, up 15% from €74, while PSP Swiss Property's price objective rose to CHF 180 from CHF 155, an increase of 16%. Merlin Properties was maintained at Buy with an unchanged €16 price objective. Tritax Big Box remained "buy" at 190 pence and was identified as the brokerage's top pick for 2026.
At the aggregate level, BofA said 56.14% of European real estate and property stocks under coverage were rated "buy," 20.18% "hold" and 23.68% "sell" as of Dec. 31, 2025.
Within the REIT subgroup, 59.30% were rated "buy," 25.58% "hold" and 15.12% "sell," according to the brokerage's equity investment rating distribution data .
Valuation metrics showed European REITs trading at about 0.8x price-to-book value based on 2027 estimates, representing roughly a 20% discount to net asset value and placing the sector near historical trough levels.
U.K. REITs were trading at about 0.7x book value, while Swiss stocks were closer to 1.3x, the brokerage said.
Sector data showed European office REITs trading at an implied cap rate of about 6.2%, close to historical trough averages, while dividend yields stood near 6.3%, above prior trough levels.
Office REITs were also trading at their lowest price-to-funds-from-operations multiples since the global financial crisis.
On balance sheets, BofA said the average cost of debt for European REITs was 2% in 2025. It projected that refinancing and hedging structures would push borrowing costs up by about 20 basis points per year through 2027, diluting funds from operations by roughly 3% annually.
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