JP Morgan upgraded British Land and Land Securities to 'overweight', supported by a prediction that retail property values were recovering.
The upgrades sent both companies' shares up more than 4% on Tuesday and they were the biggest gainers in the FTSE 100 index.
Analysts' consensus for a 3% drop in British Land's net asset value is too gloomy, JP Morgan said, predicting a 3% increase. The bank increased its price target on British Land shares to 600p from 550p, including 22% upside, and upgraded from 'neutral'.
UK retail property had its first month of capital growth in more than three years in May, the bank said. Prospects for the retail sector are looking up as people plan to visit malls and retail parks and data from online sources show interest reviving, JP Morgan said.
"Supporting the upgrade is our belief that UK retail – after a multi-year decline – is turning the corner," analyst Neil Green wrote in a note to clients. British Land, whose properties include Sheffield's Meadowhall shopping centre, is also set to start building its mammoth Canada Water development in 2021 after more than a decade of preparation, Green said.
JP Morgan also upgraded Land Securities from 'neutral' and increased its price target on the shares to 850p from 800p with 26% upside. The bank said the shares had underperformed other retail and office companies and that applying peer group multiples showed "significant upside" for the owner of Bluewater shopping centre.
"An unweighted average basket of London office stocks is up 16.6% in last six months, and a European retail basket is up 29.7%, while LAND shares haven’t moved (0.5%)," analyst Tim Leckie said. Landsec also has a favourable development pipeline and UK retail values are bottoming, he added.
British Land shares rose 4.2% to 514p at 09:20 BST and Landsec shares rose 4.5% to 708p.