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The past three months have seen a cautious but tangible recovery in Germany’s listed real estate sector. Key players, including Vonovia, LEG Immobilien, TAG Immobilien, and Aroundtown, have shown varying degrees of resilience as markets respond to improved sentiment, stabilising property values, and the prospect of lower interest rates.
After several years of steep declines, the sector is staging a tentative comeback. The Kirchhoff Real Estate Stock Sentiment Indicator for the second half of 2024 jumped to 47.7 points, a significant rise from 15.7 points in the first half. Analysts remain particularly optimistic about residential real estate stocks, citing strong demand for housing, limited supply, and stabilising valuations as drivers of this recovery.
Jens Hecht, Managing Partner at Kirchhoff Consult, highlighted the changing tide: “The positive share price development in recent months shows that real estate stocks are attracting interest from more and more investors. However, the capital market continues to undervalue many real estate companies compared to their pre-crisis levels in 2022.”
Vonovia, LEG and TAG show recovery paths
As Germany’s only DAX-listed real estate company, Vonovia has led the sector’s rebound. Its share price, currently hovering around €30, marks a substantial recovery from its 2023 lows, when it dipped below €20—at one point falling under €16. CEO Rolf Buch confidently declared, “Vonovia has left the crisis behind,” pointing to stabilising property valuations and improving transaction activity.
Despite reducing its net loss to €529 million in H1 2024 (down from €4 billion in 2023), Vonovia continues to grapple with €42 billion in debt. The company’s ongoing divestment of non-core assets, targeting €3 billion this year, is intended to reduce its loan-to-value (LTV) ratio from 48.2% to 45% by year-end. Analysts remain divided: Goldman Sachs raised its price target to €43.70, citing progress in portfolio sales, but Jefferies highlighted the high debt burden and called for a potential capital increase to unlock further growth.
LEG Immobilien, an MDAX-listed residential specialist, has similarly shown positive momentum. Its share price has risen from under €50 in early 2023 to €81, driven by stabilising portfolio values and improved financing conditions. Deutsche Bank recently upgraded LEG to "buy," setting a target price of €90. However, analysts caution that regulatory uncertainties and rising ESG requirements could pose challenges for the company, which manages 166,000 apartments in North Rhine-Westphalia.
TAG Immobilien has experienced a more turbulent path. Its share price plunged from €27 in 2021 to €5.60 in 2023 but has since rebounded to €14, buoyed by improving sentiment following the ECB’s interest rate cuts. Analysts from Deutsche Bank and Baader Bank have upgraded TAG to "buy," citing a stabilisation phase and renewed growth potential. However, with its portfolio devaluations (11.5% in 2023) and high sensitivity to interest rates, TAG faces ongoing hurdles.
Aroundtown’s mixed recovery
Aroundtown, a commercial property specialist, has recently been a standout performer among MDAX real estate stocks. Its share price has climbed by nearly 25%, bolstered by a slight upgrade to its annual profit forecast and improving sentiment across its residential, commercial, and hotel portfolios. Over the last six months, its stock has practically doubled, reflecting investor confidence in a stabilising market.
However, doubts about Aroundtown's immediate prospects remain. Its LTV ratio has already exceeded its 45% target, and while its net asset value per share (€7.40) far outpaces its current trading price of around €2.30, analysts remain sceptical. Deutsche Bank, for example, maintains a "sell" recommendation, citing the company’s high debt levels and exposure to mixed-use property risks.
Broader factors at play
Beyond individual performances, the sector’s recovery is shaped by broader economic and policy factors. The ECB’s pause on rate hikes has improved market sentiment, while inflation, though easing, continues to push up operational and refinancing costs. Regulatory challenges, particularly around ESG compliance and rent controls, also weigh heavily on the market. Limited new housing supply exacerbates the mismatch between demand and availability, particularly in the residential sector, further driving valuations.
Despite these headwinds, residential real estate remains the most promising segment. Strong demand fundamentals and stabilising portfolio values offer a more favourable risk-return profile than the still-volatile commercial property sector.
Recovery or respite?
The recovery in Germany’s listed real estate sector, while encouraging, faces numerous uncertainties. Vincent Furnari, Managing Partner at Kirchhoff Consult, noted, “Companies that integrate sustainability into their strategy in a targeted manner are strengthening their competitive position and gaining advantages in the capital markets—for example, by issuing green bonds.”
The coming months will test the sector’s resilience. Sustained rate cuts could boost transaction volumes and valuations, but lingering debt burdens, regulatory constraints, and the possibility of slower economic growth pose significant risks. Investors and policymakers alike will need to navigate these challenges carefully to ensure this recovery is not just a fleeting respite.
