Turning Point for German Real Estate Stocks?

Hamburg, March 17, 2023 – The Hamburg-based agency for financial and corporate communication, Kirchhoff Consult AG, has published the new edition of the "Kirchhoff Sentiment Indicator Real Estate Stocks". The experts are optimistic that real estate stocks will continue to develop positively even in the current challenging economic environment. The survey was conducted for the eighth time. As part of the study, real estate experts evaluated the development prospects of German real estate stocks as well as the greatest opportunities and challenges.

Jens Hecht, CEO of Kirchhoff Consult AG:"When looking at real estate stocks, the industry's current challenges often take center stage - especially rising capital costs, high energy prices, and increased material costs. The study results show that the demanding conditions are often priced into the stock prices. This open opportunities for medium-term price gains. However, it is too early to speak of a turning point from our point of view."

Positive sentiment due to a very favorable valuation level

The surveyed analysts are cautiously optimistic about the coming months. The overall sentiment reached 3.8 points on a scale of -100 to +100, remaining in the positive range (H2 2022: 4.5 points). The assessment follows significant declines in real estate stock prices. The share prices of the largest German real estate companies have fallen by almost 43 percent in the past twelve months. In addition, current stock prices are more than 65 percent below the net asset value (NTA or NAV) of the companies.

It is noteworthy that before the outbreak of the Corona crisis and the resulting market disruptions, some companies were trading at a premium to their net asset value. The question arises as to when the "bottom line" will be reached in terms of stock prices and when real estate stocks can regain their old strength. The results of the sentiment indicator suggest that closing the huge gap is not expected in the short term. However, optimism prevails that real estate stocks will recover over the course of the year. This is also supported by the overall positive start to the year. The RX Real Estate Index has risen by around six percent since the beginning of the year.

Outlook brightens for German residential real estate stocks

The sentiment of the surveyed analysts has improved for residential real estate stocks. The sentiment indicator is at 11.5 points, significantly higher than the last survey (H2 2022: -2.3 points). The assessment by company representatives is at a similar level, at 11.4 points (H2 2022: 11.4 points). The positive sentiment is supported by a significant demand overhang in the German residential rental market.

However, the experts do not expect a short-term trend reversal. The prospects are expected to be significantly more positive in the medium term. The sentiment among analysts remained slightly negative in the three-month scenario at -3.8 points (H2 2022: -9.1 points). In the twelve-month scenario, the indicator reached 26.9 points - a significant increase compared to the last survey with 4.5 points.

New risks and familiar challenges

Experts expect that the challenges for market participants will change between 2023 and 2024. Currently, the increasing costs of construction and interest rates clearly outweigh other risks. These risks will become less significant in the coming year. It is noteworthy that companies view dealing with rising ESG challenges as the most urgent problem for the year 2024 (55 percent). The high importance of ESG factors corresponds to the result of the last Kirchhoff sentiment indicator with a focus on green finance.

Vincent Funari, CEO and board member of Kirchhoff Consult AG:"ESG has become a decisive competitive factor for many real estate companies. Pressure is mounting from various sources, such as lawmakers, banks and investors. Most companies are aware of this and have made great progress in ESG over the past few years. However, those who are already lagging behind in implementing rising ESG requirements will have an even harder time in the future, especially since pressure from lawmakers is likely to increase."

Clear winners in the comparison of asset classes: Residential, hotel, logistics, and science parks are ahead

Analysts and company representatives come to very similar results regarding the development prospects of different asset classes. In the real estate year 2023, the best growth prospects are seen in the areas of residential, hotel, logistics, and science parks. This assessment is driven by the currently very high demand in these segments. The hotel industry has significant catch-up potential after the corona pandemic. For the year 2024, the residential, logistics, and science park asset classes are ahead.

Stefan Scharff, founder and CEO of SRC Research: "Taking all real estate stocks into 'custody' due to the complex market challenges is the wrong approach. It depends on the valuation level, the business model, and the management – and here, I see some companies very well positioned. Especially in the mentioned asset classes, I see very exciting companies with high potential for price increases."

Additional Information

The study can be found at the following link.

SURVEY METHODOLOGY

The "Kirchhoff Real Estate Stocks Sentiment Indicator" by Kirchhoff Consult is the sentiment indicator for the German real estate stock market. Kirchhoff Consult regularly asks the most important analysts for German real estate stocks how they expect the real estate stock market to develop in the next three or twelve months. They are also asked separately about the price development of commercial and residential real estate stocks. The analysts have a scale from +2 (strongly rising, over +15 percent) to -2 (strongly falling, under -15 percent) to answer. A value of "0" means that no or only very minor changes (+/-5 percent) are expected. The evaluation reflects the average of all analyst assessments.