Another tough year for European property stocks got a whole lot better this month.
The Stoxx 600 Real Estate Index — which tracks the likes of Paris-listed shopping mall group Unibail-Rodamco-Westfield, Spanish commercial landlord Merlin Properties Socimi SA and UK office building owner British Land Co. Plc — has advanced 15% in November, set for its biggest monthly gain since 2009. Five of its components have risen more than 20%.
Expectations that interest rates have peaked and central banks might start unwinding their tight monetary policies have boosted the investment case for the debt-laden sector. Down 10% year-to-date through the end of October, the subindex has swung to a 3% gain.
A recent easing in bond yields has boosted sentiment toward real estate stocks, given that landlords have the heaviest debt burden ratio across the continent as well as the highest cost of borrowing.
Fabiana Fedeli, chief investment officer of equities, multi asset and sustainability at M&G Group Plc, sees “a lot of interesting opportunity” within the property space.
“We have bought into some European and UK real estate companies after the sharp price drop because we believe that some of them have strong balance sheets, longer-term debt maturities and some are not even pure real estate, but actually infrastructure,” Fedeli said in an interview.
Blackstone Inc.’s Steve Schwarzman said this week that his firm is eyeing a bevy of buying opportunities in real estate across Europe as central banks become less aggressive with rate hikes, allowing deal volumes to begin to bounce back.
Read: Blackstone’s Schwarzman Eyeing Real Estate Deals in Europe
Still, the subindex remains 40% below its 2020 high, weighed down by concern over debt-servicing costs and slumping property valuations.
The risks around the sector were highlighted this week when Austrian tycoon Rene Benko’s Signa filed for insolvency after a last-ditch attempt to raise emergency funding failed.
--With assistance from Jan-Patrick Barnert.
(Updates with investor comment in fifth and sixth paragraphs)
Author: Macarena Muñoz and Joe Easton