Real Estate Stocks: Divided Market

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Real estate stocks currently experience a kind of emotional roller coaster. While residential real estate is one of the beneficiaries of the Corona Crisis, retail and hotels are struggling and shaking on its foundations. mrp has taken a look at how individual stocks have performed and what UBM is doing to cope with the crisis.

• Germany: residential property prices increased by 7.8% in Q3 2020
• Real estate ATX is at a 20% discount since the beginning of 2020
• UBM restructures its portfolio and focuses on green buildings

A characteristic of the Corona crisis is its very asymmetric impact on individual sectors. This effect has been discussed profoundly regarding the sectors of tourism an of technology and it also shows in the real estate sector. While residential real estate shows some severe price growth thanks to rising demand, the retail and hotel sectors are suffering immensly from lockdowns. In the case of retail, the sector was already facing massive competition from online web shops before the pandemic. Since tourism slid into this crisis from a position of strength in the blink of an eye, it still has every chance of largely recovering in a post-Corona world.

In Germany, in particular, residential real estate increased by 7.8% in Q3 2020, which was the strongest increase since 2016. Reasons of this increase are the persistently low interest rates, but also a profound desire of more available room/space in times of pandemic. At home people work, study, do gymnastics … hence the living space has to provide much more than before the crisis hit. Therefore, people have the urge to increase their housing space. All this has reflected in the changes of real estate share prices in the Dax. Vonovia’s share price rose by more than 24% and Deutsche Wohnen stock increased by almost 20%.

Unfortunately, commercial real estate does not reach such heights. In the Corona Crisis, operational hotels, retail and office buildings are under extreme pressure. Depending on the respective portfolio of a real estate company, investors have punished these kind of shares. Although the real estate ATX of the Vienna Stock Exchange has lost almost 20% in value since the beginning of 2020, it has again risen by more than 25% over its lowest point (end of March 2020). UBM the international real estate developer has certainly been hit hardest by the crisis, as it has the highest proportion of hotels in its portfolio. Since the beginning of 2020, the share price has lost around 25% in value. However, restructuring has taken place recently since the pipeline has been diversified significantly. The quantity of hotel projects has been reduced and now consists mostly of residential and office properties, which account for around 80% of the portfolio. Analysts assess the company as “undervalued” at a 30% discount to book value. The focus on sustainability (keyword: green buildings) adds to the attractivity of the company.