BETWEEN CRISIS AND COMEBACK – REAL ESTATE STOCKS AT THE TURNING POINT

• Sentiment index rises to 53.3 points - analysts are optimistic, trend reversal after the 2022 crisis continues (H2 2024: 47.7 points)
• Residential real estate remains the clear favorite – at 69.7 points, well ahead of commercial real estate (41.0 points)
• Attractive risk/reward profile for residential real estate – stable demand ensures high valuation certainty
• Real estate stocks continue to lag behind the overall market – DAX with significantly better performance in 6- and 12-month comparison
• Valuation discounts remain high – asset values are not yet priced in for residential and commercial real estate
• Financing environment and ESG requirements are seen as the biggest short-term and long-term challenges

The Hamburg-based communications and strategy consultancy for financial communications and ESG, Kirchhoff Consult, has published the twelfth edition of the "Kirchhoff Sentiment Indicator for Real Estate Stocks". The analysts surveyed are cautiously optimistic about the further development of real estate stock prices: The sentiment index rises slightly to 53.3 points (H2 2024: 47.7 points), signaling a moderate but stable improvement in market sentiment.

Jens Hecht, Managing Partner at Kirchhoff Consult, comments: "The real estate market is showing signs of stabilization, even though market value remains well below its intrinsic value. However, the high valuation delta continues to underline the sector's catch-up potential. In residential real estate in particular, we are seeing the market increasingly consolidate and investors reassess the resilience of this segment. Despite challenging conditions - such as a challenging interest rate environment and stricter ESG requirements - we believe the sector remains attractive in the long term."

Steady recovery of German real estate stocks

Over the past six months, the shares of the ten largest listed real estate portfolio holders in Germany have risen by an average of +2.4 %. Commercial real estate stocks performed above average at +3.0 %, while residential real estate stocks remained slightly below the sector average at +1.9 %. This means that real estate stocks continue to falls short of the market as a whole – the DAX recorded growth of +19.5 % in the same period.

Despite this below-average performance, the sector continues to exhibit a high valuation delta: The average discount to net asset value is -39.9 % – a clear sign of continued caution on the part of investors. At the same time, this gap harbors considerable catch-up potential. From the analysts' point of view, a positive impulse, such as a further easing of interest rate policy or an economic upturn, could provide the necessary momentum to noticeably reduce this valuation gap.

Residential real estate remains analysts' favorite

Sentiment among analysts remains significantly more positive for residential real estate (69.7 points) than for commercial real estate (41.0 points). In a long-term price comparison of the last three years, residential real estate has also shown an above-average performance of +8.4 % compared to an industry average of just +0.7 %. The main driver remains the sustained high demand for living space.

Real estate analysts also see the most attractive risk/reward profile in residential real estate– primarily due to the stable earnings situation and robust market demand. A recently published analysis by BNP Paribas Real Estate confirms this trend: the transaction volume on the German residential investment market rose by over 30% year-on-year to around EUR 4.5 billion in the first half of 2025. Other market observers such as JLL, NAI Apollo, Colliers and CBRE also report transaction volumes of between 3.9 and 4.4 billion euros.

Office real estate subject to the greatest uncertainty

Although sentiment for commercial real estate remains positive (41.0 points), the value has hardly changed compared to the previous six months (43.2 points). Within the segment, office real estate in particular are still considered the most uncertain asset class according to analysts – due to structural changes in the working environment, persistent surplus space in B and C locations and difficult marketing prospects.

The evaluation of the risk perception of various real estate segments shows that office and retail real estate are most frequently rated as particularly uncertain. The ongoing debate about "new work", space efficiency and ESG criteria further reinforces this perception and dampens both the willingness to invest and the valuation prospects in the listed segment.

Financing environment and ESG requirements are currently seen as the biggest challenges

The main challenges cited by the analysts surveyed are the ongoing challenging financing environment and the increasing complexity of regulatory ESG requirements. Both factors have a negative impact on business models, investment decisions and the scope for valuation in both the short and long term.

Despite recent political discussions about a possible reduction in individual ESG requirements - for example in the area of reporting or supply chain legislation – real estate analysts do not expect energy-related criteria to become less relevant in the sector. On the contrary: as expected, they are increasingly directly linked to the financing capability of properties and also play a central role in the rental decisions of tenants. ESG standards – and above all the energy efficiency of real estate – are therefore continuing to develop into a decisive competitive factor that will shape both access to capital and market positioning in the long term.

Further information

You can find the study here (available only in German language).

METHODOLOGY OF THE SURVEY

The “Kirchhoff Sentiment Indicator for Real Estate Stocks” from Kirchhoff Consult is the sentiment indicator for the German real estate market. Kirchhoff Consult regularly asks the most important real estate analysts how they expect the real estate stock market to develop over the next three or twelve months. The survey also asks separately about the performance of commercial and residential real estate stocks. 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 assessments.

As part of the analysis for the “Kirchhoff Sentiment Indicator for Real Estate Stocks” for the first half of 2025, ten of the real estate analysts surveyed gave their assessment.