Berlin's property market is so hot that right now, newcomers couch-surf for months trying to find apartments – while the natives are staying put. In fact, the real-estate market is booming across Germany and you hear the same story in Frankfurt, Munich and Hamburg. Investors are tempted to take profits, also in commercial property, since prices have soared more than 60 percent since 2010, according to Bundesbank estimates.
German real-estate companies, many of which are relative newcomers to the stock market, are enjoying the party. Vonovia, Ado Properties and business property specialist firms Aroundtown and TLG were listed in the last five years; and Adler and Grand City are also new. Now, TLG is listed on the MDAX and Aroundtown joined the SDAX.
Vonovia, Germany's largest housing association, has lent momentum to the whole property shares segment. In the past 12 months alone, its stock price has risen twice as fast as the DAX. Deutsche Wohnen, LEG and TAG outperformed their benchmark index MDAX, and Ado Properties significantly outperformed the SDAX.
Vonovia isn't the only star of the show. Germany’s second-largest landlord, Deutsche Wohnen, is another one to watch. As more people flock to cities, rents are rising rapidly, especially in Berlin. Around 70 percent of the Deutsche Wohnen portfolio is made up of apartments in and on the outskirts of the capital, leading Deutsche Bank analyst Markus Scheufler to give the stock a price target of €44.
Surging demand for real estate in Berlin might have an even bigger impact on Ado Properties, which focuses exclusively on the capital. Mr. Scheufler recommends Ado shares as a “buy” with a price target of €54 a share.
Market observers say they expect this positive trend to continue, as prices for both residential and commercial property are rising. Commercial landlords in particular are likely to profit from the upswing. “Investors should weight commercial real estate companies in their real-estate equity portfolios more heavily than in previous years,” said Bernd Janssen, an analyst for Victoria Partners.
Aroundtown saw the biggest price jump among real-estate companies in the past 12 months.
His colleague Helmut Kurz predicts “opportunities for disproportionate price gains.” He is focusing on one stock in particular. “TLG might become the Vonovia of the commercial real-estate sector.” Last summer, TLG, a company based in Berlin and specializing in commercial property, took over a competitor, WCM. While some analysts view the company’s expansion into western Germany optimistically, others are more skeptical.
Aroundtown, a specialist in commercial and residential real estate "with growth potential" saw the biggest price jump among its peers in the past year, with a gain of more than 60 percent. Listed on the SDAX, analysts give the company a good rating, with Warburg Research recommending the company as one of the best investment ideas for 2018. Other experts are less enthusiastic, criticizing the fact that the company's portfolio lacks prime office space in German city centers.
But there is cause to pause, as rising interest rates pose the biggest risk to the industry. Analyst Mr. Janssen said he sees no reason to change his positive assessment for the coming year, but cautions against euphoria. In the long run, he said, an increase in borrowing costs will affect sales. By his reckoning, buyers will offer prices lower than today’s prices because of more expensive financing.
So investors, beware: Real estate is a long-term investment and while the boom goes on, nothing lasts forever. Perhaps that's a glimmer of hope, meanwhile, to desperate house-hunters.