German commercial real estate stocks outstrip resi counterparts

Commercial real estate stocks in Germany are outstripping their residential counterparts, according to a survey published this month by Hamburg-based Kirchhoff Consult.

The group asked German real estate stock analysts which assets they were most bullish about. On Kirchhoff’s scale of minus 100 to +100, the analysts gave commercial real estate stocks a score of 29.5 points, compared to a paltry 4.5 points for residential stocks. The overall mood scored 9.1.

‘Commercial real estate stocks have emerged the winner in our sentiment indicator,’ said Thomas Effler, a real estate analyst at ODDO BHF Bank. ‘We view commercial real estate stocks as undervalued compared to their residential counterparts. These companies have profited in recent years from the strong economy and have developed in an above average manner from an operational perspective,’ he added.

Some commercial real estate companies that have performed particularly well over the last three years include Luxembourg-based group Aroundtown, Austria’s CA Immobilien and Hamburg-based TAG Immobilien, which have seen their share price in the period soar by 62%, 55% and 60%, respectively.

However, that’s not to say that that the general trend is always upwards, warned Stefan Scharff, a managing partner at SRC-Scharff Research und Consulting in Frankfurt: ‘For every company with a continued upwards trend on the stock market, there are others whose stocks move sideways or even downwards,’ he said. ‘Now, more than ever before, it’s about picking the right stock. The residential market has become too expensive, which is why it scored lower in the survey. Residential prices will likely move sideways, whereas we expect to see more upside in the office sector,’ he told REFIRE.

Still, many analysts are reasonably positive moving into the next three months. Around 36% of those surveyed said that they expect stock prices to rise by between 5% and 15% in the period. In a sign of how fickle the market can be, 20% said they expect prices to fall by between 5% and 15% in the period. The majority of respondents – 46% - said a sideways move of between minus 5% and plus 5% is more likely.

The next 12 months foretell a similar story. Again, 36% of respondents said that they expect stock prices to rise by between 5% and 15% in the period. However, the majority – 55% - anticipates a sideways move of between minus 5% and plus 5%. An additional 9% expects prices to fall by between 5% and 15% in the period. Only one analyst expected prices to fall by more than 15%.

Even if interest rates rise in Germany, the short-term impact will be minimal, according to Scharff: ‘It won’t have a big immediate impact on the market because a lot of investors are locked into long-term loans with just 2% interest. Property firms have enjoyed the good weather and that is set to continue.’