Investments in property shares – residential property shares perform significantly better than commercial property shares

• Basic sentiment among analysts and companies rises to 15.7 points (H2 2023: 10.7 points).
• Prospects for residential property stocks (21.1 points) are assessed as significantly better than for commercial property stocks (-7.2 points).
• Financing environment and valuation level remain the most pressing challenges in the property year 2024.
• ESG requirements and regulation are seen as the biggest challenges facing the sector in the long term.

Hamburg, 21 May 2024 – The Hamburg-based agency for financial and corporate communications Kirchhoff Consult has published the tenth edition of the “Kirchhoff Sentiment Indicator Property Shares”. The experts surveyed are generally optimistic that the share prices of property companies will continue to develop positively, even in the current tense macroeconomic environment. Nevertheless, significant differences between the asset classes are discernible and it becomes clear that German listed property companies continue to face complex challenges. As part of the study, property experts assessed the development prospects of German property shares as well as their greatest opportunities and challenges.

Jens Hecht, CEO of Kirchhoff Consult: “The basic mood among capital market experts is clearly positive for the second time in a row. The general upward trend in property share prices in the last two quarters supports this result. Previously, prices had fallen significantly, leading to an extraordinarily favourable valuation level. The extremely challenging framework conditions have already been priced in in many cases. This opens up scope for further price gains.”

Positive sentiment due to favourable valuation level
The analysts and company representatives surveyed are cautiously optimistic about the future. The general sentiment index reached 15.7 points on a scale of -100 to +100 and has therefore risen slightly compared to the last survey (H2 2023: 10.7 points). The assessment follows significant price losses in property shares in previous years. Over the last twelve months, however, the shares of the ten largest German real estate companies have risen by an average of almost 22 per cent, outperforming the DAX40, which has risen by around 14 per cent. Nevertheless, property shares are traded at a discount of around 48 per cent to their net asset value (NTA or NAV) and are therefore still favourably valued. This fundamental discrepancy explains why the experts are optimistic about the future.

Stefan Scharff, Founder and Managing Director of SRC Research: “We are experiencing a recovery at a valuation level that remains low. This is fuelling hopes of price gains. However, the turnaround will not be a sure-fire success. I wouldn't put my hand in the fire that the crisis is completely over.”

APositive outlook for German residential property shares
The basic sentiment for residential property shares remains at a high level of 21.1 points (H2 2023: 22.8 points). Company representatives (26.3 points) assess the situation more positively than analysts (15.9 points). This was preceded by significant book value losses in 2023, with Vonovia, Germany's largest listed residential property portfolio holder, having to write down its portfolio by 6.6 per cent in the first half of 2023 and by a further 4.2 per cent in the second half of 2023. Nevertheless, there is still a large difference between the net asset value and the share price. As at 31 December 2023, the NTA per share was EUR 46.82, which is significantly higher than the current share price (30 April 2024, XETRA) of EUR 27.12. Although analysts are generally positive about the coming months for residential property shares, the medium-term potential is estimated to be significantly higher. In the three-month scenario, analyst sentiment reached 10.5 points, which is less than half of the twelve-month scenario of 26.3 points.

Commercial property shares lag significantly behind
The general sentiment for commercial property shares remains negative at -7.2 points (H2 2023: -10.7 points). There is a clear difference in the period under review. With a value of -23.7 points, sentiment in the short-term scenario is clearly negative, while the long-term scenario is even rated positively at 7.9 points. The results fit the picture of the spring 2024 survey of the ZIA-IW Real Estate Sentiment Index. Here, too, sentiment in the office sector remains in negative territory at -5.8 points. According to this, the stable employment trend would have a positive effect on office demand in the long term. However, the trend towards more mobile working will remain a key uncertainty factor.

New risks and familiar challenges
A key factor for the development of share prices is the development of property values. For 2024, 88 per cent of the analysts surveyed expect a further decline in commercial property. In the residential property sector, the proportion is significantly lower at 55 per cent. In the long term, however, this risk is considered to be low. Around 90 per cent of the participants surveyed do not expect property values to fall in a period of more than three years. This means that the long-term development prospects for property shares also remain positive.

The experts expect the challenges for market participants to change over the next few years. Current risks include, in particular, the valuation level and the financing environment. The dominant question in the property sector remains how well companies can react to temporary declines in valuations - particularly in the case of upcoming refinancing. In the long term, ESG requirements and regulation are categorised as the most pressing challenges. In the property year 2024, the best growth prospects are seen in the residential, retail, hotel, and science park sectors.

Vincent Furnari, Managing Partner of Kirchhoff Consult: role in the refinancing and marketing of property. In addition, pressure from regulators will continue to increase. Most companies are aware of this and have made great progress in terms of ESG in recent years. Companies are well advised to integrate these challenges into their corporate strategy in a structured way and to implement them in a planned manner.”

Further informationen
The study can be found under the following link (German only) Link.

Survey methodology
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 property analysts and investor relations managers of listed German property companies how they expect the property share market to develop over the next three or twelve months. The survey also asks separately about the performance of commercial and residential property shares. The analysts and investor relations managers 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.