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Jefferies expects shares of U.K.-focused commercial real-estate stock Life Science REIT to rise by more than 60% over the next 12 months. The investment bank’s prediction comes at a time when the global commercial real estate market has seen prices fall sharply over the past year . In the U.K., capital values for commercial real estate have dropped by more than 20% from their peak in June 2022 — the sharpest correction since Lehman Brothers’ failure in 2008, according to a report by asset manager Schroders. The primary reason for this decline is an increase in interest rates and investor sentiment rather than falling rents, according to Schroders. In addition, the growing trend to work from home has not helped the sector. In response, both debt-backed buyers and investors with equity have demanded lower prices to meet their return targets. However, according to Jefferies, Life Science REIT will escape the brunt of the pressure facing the rest of the sector. The investment bank expects the stock to rise to £1.14 ($1.42) from its current share price of £0.70. LABS-GB 5Y line Life Science REIT, which trades as LABS on the London Stock Exchange, invests in a diversified portfolio of commercial real estate in Britain. These properties are then leased to “tenants operating in the life science sector,” according to the company. A REIT, or real estate investment trust, is a company that owns and operates property and trades on a stock exchange like an ETF. According to Jefferies, LABS is unique due to its exposure to tenants in the life science sector concentrated in the Oxford-Cambridge corridor. Four of the six properties owned by the company are in the area, known as the Arc, which is 60 miles northwest of London. The so-called “golden triangle” of Oxford, Cambridge, and London is home to hundreds of life sciences companies, research facilities, and many large universities, including pharmaceutical giants AstraZeneca and GSK . The region is also set to benefit from the U.K. government’s 10-year strategy, unveiled in 2021, to aid and develop the life science sector in the U.K. In addition to the structural growth environment, Jefferies’ analysts pointed to falling vacancy levels for office space in the Oxford and Cambridge area last year. In a note to clients on Apr. 20, the analysts said LABS had signed new agreements with rents nearly doubling to £110 per square foot, which covered almost 70% of the cost of converting a former office block into a laboratory. Jefferies analysts, however, cautioned that a global economic slowdown, a fall in funding for life science businesses, and increased competition created downside risks to their forecasts. Miranda Cockburn, equity analyst at Panmure Gordon who has a more conservative approach to the stock’s valuation, reiterated a buy rating on the stock on Apr. 24. Her price target of £0.86 indicates 24% upside from current levels.
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