BofA Global Research started 2026 with a bearish turn on European real estate, recording more downgrades than upgrades across its coverage. The brokerage cited valuation moves, rising funding costs, and sector dispersion as key drivers. Colonial and Grand City Properties were cut to 'neutral,' with Grand City's price target slashed to €9 from €12.

The bank double-downgraded one REIT to 'underperform' and upgraded two others to 'buy,' including Tritax EuroBox and PSP Swiss Property. BofA noted European REITs trade at a steep 20% discount to net asset value, near historical troughs. U.K. stocks trade even cheaper at 0.7x book value as higher interest rates compress asset yields.

Funding costs remain a major headwind. BofA projects borrowing expenses will rise about 20 basis points annually through 2027, diluting funds from operations by roughly 3% each year. Office REITs face particular pressure, trading at their lowest multiples since the financial crisis despite offering dividend yields above 6%.

Tritax Big Box emerged as the brokerage's top pick for 2026, maintaining a 'buy' rating with a 190 pence price target. Despite the sector's challenges, BofA still rates 56% of European property stocks as 'buy,' betting that discounted valuations will eventually attract investors seeking yield in a stabilizing rate environment.