LONDON-Investment bank Morgan Stanley recently became“officially optimistic” on prospects for listed property firms forthe first time since the global financial crisis, issuing a 50-pagereport upgrading the sector to attractive from its prior cautiousstance.

The study, signed by analysts Bart Gysens, Christopher Fremantleand Bianca Riemer, outlined what has changed: “Tailwinds fromrising liquidity and inflation expectations should more than offsetheadwinds from debt deleveraging and refinancing in the mediumterm. We think the quoted property sector will continue its recenttrend of outperformance relative to the broader equity market wellinto 2011.” The highest MS overweight stock picks are British Land,Segro and Unite, but analysts also like Immofinanz as an,“out-of-consensus call with macro-independent value-creationpotential”.

Property yields and stocks’ implied yields continue to offerall-time high spreads over real bonds and interest rates, which arenow likely to remain low in the medium term, the report said. Therelatively attractive spread of property over bonds is insufficientfor outperformance but the continuous stream of liquidity fromquantitative easing by central banks will drive capital values andstocks prices further. However it warned that the prior reason forcaution—a wall of refinancing and recapitalisations—has not beenremoved, and the QE liquidity boost is merely delaying aninevitable period of poor performance.