Tenants to the left of me, trade wars to the right, here I am, stuck in the middle...

The news this week that Caterpillar, often viewed as a bellwether industrial group, reported a sharp slow down in sales in China will have been widely noted in Germany, many of whose leading exporters will shortly be perusing their own results for the final quarter of last year. They’re not likely to make for pleasant reading.

Caterpillar, along with other leading groups like chipmaker Nvidia, Apple, Ford and Samsung, have been warning about the rapidly slowing Chinese economy for months. The looming trade war between Washington and Beijing won’t kill Caterpillar, whose China revenues represent less than 10% of its sales. But for Germany’s powerful exporters, this will have worrying consequences.

The problem with exporting capital equipment, which Germany does so well, is that a downturn in a major market can resemble falling off a cliff. Sales are steady until, all of a sudden, they’re not. When companies fear the immediate future, or they face a new tariff of 25%, they cancel that order for new machinery. Production in factories across Germany’s famed Mittelstand can suddenly grind to a halt, after ten years of operating at growing capacity.

Economists of all hues are now scrambling to revise their projections for Germany’s economic performance through 2019 and beyond. In all cases the new projections are sharply lower than the cautiously circumspect fore- casts of even a few weeks ago.

Germany just about escaped a technical recession in the last quarter, by the skin of its teeth. But all the indicators are pointing to tighter times ahead.

The stock market recognized this six months ago, with shares across the board falling heavily from September onwards, after a few earlier wobbles. Listed real estate stocks slid in sympathy, but since the start of the year have been recovering strongly. After all, if the European Central Bank has been scared into revising its forecasts so abruptly downwards, they’re unlikely to be raising interest rates in a hurry. That’s good for real estate investors, who can still point to the attractive spread between their modest returns and the miniscule or negative rewards on bonds or cash.

But while the real estate party in Germany is sobering up, the guests are far from leaving. There is still mileage in Europe’s strongest economy as long as that interest rate day of reckoning can be postponed. So far, it can.

And yet, at the edges, investors need to be scrutinizing their assumptions now more than ever. Politically, the tide is turning, to accommodate the strident de- mands of factions on the left and the right. While Germany’s headlines have been dominated by the AfD and its tolerance of unsavoury extreme right elements, on the streets the groundswell of support for official state intervention in the housing mar- ket is surging. Germany’s listed housing companies are beginning to feel the heat.

The fight that erupted last November between Deutsche Wohnen and residents of apartments on the old East Berlin’s famous Karl Marx Allee has resulted in the effective renationalisation of the apartments, after years of seemingly incessant privatisation of the city’s housing stock. The city’s mayor, Michael Müller, now has the bit between his teeth and claims the fight against property speculation has only just begun.

Tenants across the city are now clamouring for a referendum which would allow the city to claw back properties from companies that own more than 3,000 apartments in the capital. If they get 170,000 signatures by April, they will get their public vote. A straw poll taken by local newspaper Tagesspiegel shows that 54% of Berliners are in favour of the referendum. The hard-left Die Linke party, a member of the city-state’s ruling coalition government, has given its blessing to the expropriation initiative.

This could seriously rattle companies like Deutsche Wohnen, which owns 115,000 apartments in the city and surroundings, and others like Ado Properties, Vonovia, Akelius and Grand City Properties, who could fall foul of the city’s new-found zeal to dispossess them and pander to the activists. The market value of these apartments is put at about €33bn, although any compensation paid would be unlikely to be at market prices. Still, should anything like it occur, the bill to the city would be astronomical. And the message to investors unmistakeable.

By now, public unrest about the soaring level of rents and the shortage of affordable housing is reaching levels that no politician can ignore. Recent protest marches in Munich, Berlin and Frankfurt could morph into future “gilets-jaunes”-style demonstrations that could become nasty very quickly. Be- hind the scenes the movement is gathering political force, with Berlin’s demands for nationalisation of the state’s housing as- sets only the most vocal among many similarly discontented groupings. Where Berlin goes, others are following.

These groups are recognizing that existing measures designed to protect tenants, such as the Mietspiegel and Milieuschutzgebiet, which prevent predatory rent hikes by landlords, are simply not cutting the mustard. More radical steps are necessary, particularly to counter the effective lobbying for the real estate industry by the ZIA trade body and other influencers.

The growth of this organized resistance is gathering pace, as cells in different cities network together to force local governments’ hands. In Frankfurt a concrete plan for a new social housing subsidy of €113m for one company, funded by a new special increase in corporation taxes, raised 22,000 signatures and the support of more than 40 organisations. Similar initiatives are taking place across the country, with protesters using social media to coordinate physical demonstrations against the big housing groups. There is more trouble ahead.

Despite the newly-acquired conciliatory tones from the big groups’ managements, they are facing new and better organized resistance from opponents of their brand of capitalism – and are going to have to deal with it. It’s not going away.