Analysts expect residential property share prices to rise significantly
- Experts see favorable valuation level
- Analyst sentiment reaches two-year high of 21.4 points (H1 2023: 3.8 points)
- However, prospects for commercial property shares are mixed (-10.7 points)
- Best prospects for the residential, warehouse/logistics and industrial property asset classes as well as science parks
- The biggest challenges remain the sharp rise in capital and construction costs and the increasing ESG requirements
Hamburg, 15 December 2023 - The Hamburg-based agency for financial and corporate communications Kirchhoff Consult AG has published the new edition of the "Kirchhoff Sentiment Indicator Real Estate Stocks". The survey was conducted for the ninth time. As part of the study, property experts were asked about the development prospects of German property shares as well as the opportunities and challenges in the current market environment. In addition to German property analysts, investor relations managers from listed property companies were asked for their assessment.
Jens Hecht, CEO of Kirchhoff Consult AG: "The property sector can look back on extraordinarily challenging years. In particular, the sharp rise in capital costs and increased material costs have taken their toll on some companies. Accordingly, share prices have fallen significantly in recent years. The share price performance in recent months shows that investors are taking advantage of the current favourable valuations to position themselves more strongly in promising real estate stocks."
Residential property shares clearly outperform commercial property shares
The general sentiment among analysts and company representatives is cautiously positive at 10.7 points on a scale of +100 to -100 (H1 2023: 3.8 points). The survey results fit in with the picture emerging on the capital market. Property shares have been in an unusually long correction phase. Over the past three years, the German real estate share index (DIMAX) has fallen by around 51 per cent. In the same period, the leading German index DAX 40 rose by around 27 per cent. The picture has changed. Over the past six months, the residential property shares analysed have risen by 28 percent, significantly more than commercial property shares (plus 7 percent) and the DAX 40 (plus 3 percent). It is also striking that property shares are still trading significantly below their intrinsic value (on average more than 40 per cent). The price potential is correspondingly high. The results of the sentiment indicator suggest that the positive trend should continue, particularly in the residential property segment.
Sentiment among the analysts surveyed has continued to improve for residential property stocks. At 28.3 points, the sentiment indicator is significantly higher than in the last survey (H1 2023: 11.5 points). At 17.3 points, the assessment of company representatives is comparatively subdued, but higher than in the last survey (H1 2023: 11.4 points). The positive sentiment is underpinned by the increasing housing shortage and rising rents.
By contrast, analysts are slightly negative about the price potential of commercial property shares. The sentiment index reached -15.9 points, a significant drop compared to the last survey (H1 2023: 7.7 points). The sentiment indicator of company representatives is even strongly negative at -21.2 points - a significant deterioration compared to the last survey (H1 2023: -2.3 points).
Capital and construction costs as well as increasing ESG requirements are the biggest challenges - best prospects for residential, warehouse/logistics and industrial properties as well as science parks
As part of the real estate study, analysts and company representatives were asked which challenges they currently consider to be the most important for the property sector and which asset classes offer the best opportunity profile. Across all cohorts, the residential asset class and, to a lesser extent, warehouse/logistics and industrial properties as well as science parks are considered to have the best performance prospects. In both the long and short term, analysts and company representatives see the high cost of capital as the greatest of all challenges in the market. The extent to which a company is affected by construction and refinancing costs depends on the respective business model and market segment. However, insolvencies, including those of larger players such as Signa Holding recently, currently bear witness to the fact that the issue is highly relevant for the entire sector.
Vincent Funari, CEO of Kirchhoff Consult AG:
"ESG has become a key competitive factor for the property sector - and the pressure from legislators, banks and investors is constantly increasing. Companies that have already fallen behind in implementing the increasing ESG requirements are increasingly facing problems. We are already seeing great progress in terms of ESG among property companies. Nevertheless, the increasing ESG requirements remain a major challenge."
The "Kirchhoff Sentiment Indicator Property Shares" from Kirchhoff Consult is the sentiment indicator for the German property share market. Kirchhoff Consult regularly asks the most important analysts for German property shares how they expect the property share market to develop over the next three or twelve months. The price performance of commercial and residential property shares is also surveyed separately. The analysts can answer on a scale from +2 (strong rise, over +15 per cent) to -2 (strong fall, below -15 per cent). A value of "0" means that no or only very minor changes (+/-5 per cent) are expected. The evaluation reflects the average of all analyst assessments.
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With around 60 employees, Kirchhoff Consult is a leading communications and strategy consultancy for financial communications and ESG in German-speaking countries. For over 25 years, Kirchhoff has been advising clients on all aspects of financial and corporate communications, annual and sustainability reports, IPOs, investor relations, ESG and sustainability communications. 'Designing Sustainable Value': Kirchhoff combines content expertise with excellent design to create sustainable value.
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