The stampede of investors that the European real estate sector is suffering is on the way to being the most virulent since the financial crisis of 2008 and discounts a short-term one, as has already happened in previous crises, which could be confirmed in the first quarter of 2023, after two negative quarters. Real estate suffers losses that exceed 34%, the second highest only behind retail, 40% down, clearly impacted by inflation that reduces the purchasing power of consumers.
So far this year, the thirty largest listed companies have lost 295,000 million euros of capitalization, about 40% of the value they had on January 1 last. This has led them to discount a price to book value of 0.42 times on average, the lowest multiplier in history. In 2008, the latest data available, this indicator fell to 0.65 times, which implies a 35% discount on the value of their joint properties. Now it is expected to fall to 30% this year and touch 60% in 2023, something historic for the sector.
“European real estate is facing one”, they say from Bloomberg Intelligence, which combines extremely high discounts on its market valuations, rising financing costs, inflation in materials and construction wages and, all of this, is putting pressure on and lowering the Profitability margin offered by real estate, whether homes, offices and, particularly, shopping centers and stores. The only sector that was saved to date was that of logistics warehouses, but it is already beginning to be affected by the increase in costs of both transport and energy to maintain the ships.
In Europe, German giants such as TAG Immobilien and Vonovia (which acquired its German peer Deutsche Wohnen) suffer losses of 57% and 44%, respectively, in the year. The British company specialized in shopping centers and offices Aroundtown leaves 47%, and the Spanish Colonial is listed in the low zone of 2018, after losing almost a third of its capitalization in 2022. Merlin Properties is one of the only two values that still hold positive this year, with gains of 5%.
The case of shopping malls, which are especially affected by rate hikes and inflation, is particularly significant. The post-Covid respite has lasted very little, despite the fact that it is estimated that, after the confinements, “the average income of businesses is 45% below the previous peak in the United Kingdom and 20% less in continental Europe” , according to data collected by Bloomberg.
The British market is the most reliable indicator to predict what will come next in the rest of Europe and different analysis firms have already shown their concern that the fall in income “has been totally annihilated by a 280% rise in the costs of energy in the last twelve months,” according to calculations by Bloomberg Intelligence.
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