Real estate shares: two-tier market

– Germany: Residential property prices up 7.8% in Q3 2020 – Real Estate ATX at a discount of 20% since the beginning of 2020 – UBM restructures portfolio and focuses on green buildings

One characteristic of the Corona crisis is the fact that it has a very asymmetric effect on the individual sectors. This effect has already been discussed in detail in the areas of tourism vs. technology, but it is also evident in real estate. While residential real estate is seeing some robust price growth thanks to rising demand, the retail and hotel sectors are naturally suffering greatly from the lockdowns. In the case of retail, this is compounded by the fact that the sector was already facing massive competition from online competitors before the pandemic. In contrast, tourism slid into the crisis from a position of strength, but as a result has every chance of largely recovering in a post-Corona world.

In Germany, residential property prices have risen by 7.8% in Q3 2020, the strongest increase since 2016. Driving the movement are, of course, the persistently low interest rates, but also the desire of many people to have more space available in times of pandemic. At home, people work, study, do gymnastics … the living space has to do much more, and those who can, stock up. All this was also reflected in the share prices of the real estate companies in the Dax. Vonovia’s share price rose by more than 24% in the previous year, while Deutsche Wohnen’s was still up just under 20%.

Unfortunately, commercial real estate is a long way from such highs. Hotels, retail and also offices are under pressure in the crisis. Depending on the respective share in the portfolio of a real estate company, investors have also punished it. The real estate ATX of the Vienna Stock Exchange has lost almost 20% in value since the beginning of 2020. However, it should not be overlooked that the index has already risen by more than 25% since the low at the end of March. UBM has certainly been hit hardest by the crisis, as they have the highest proportion of hotels in their portfolio. Since the beginning of 2020, the share price has lost around 25% in value. However, restructuring has also taken place here recently. The pipeline has been significantly diversified away from hotel projects and currently consists of around 80% residential and office properties. Analysts see the company as undervalued at a 30% discount to book value. The focus on sustainability (keyword: green buildings) is also attractive.