Refinancing reckoning crushes sentiment for German listed property stock

Germany’s listed real estate sector has entered the toughest stretch of its cycle. The latest Kirchhoff Sentiment Indicator for Real Estate Stocks shows a collapse in analyst confidence, with sentiment falling from 53.3 points in the first half of the year to just 24.6 points. For a sector accustomed to valuation swings, this drop is extraordinary. It is not the result of falling rents or weak demand, but of financing costs that now overshadow every other variable.

The index, now in its thirteenth edition, is often a leading marker of where institutional capital will position next. This time it is unequivocal: underlying real estate may be stabilising, but the equity story is still deteriorating.

Financing dominates the narrative, as fundamentals hold steady

 The survey shows how comprehensively financing risk now shapes sentiment. Analysts see it as the biggest short-term burden and the central long-term hurdle for both residential and commercial property companies. Strong rental growth and solid housing demand no longer offset it.

The mix of high interest expenses, constrained equity access and limited lender appetite has created a pressure that eclipses operational performance. As analysts told REFIRE at recent conferences, companies may be past the valuation adjustment on the assets, but they are not past the financing adjustment on their balance sheets. The survey reinforces this view: 71% of respondents cite financing as the decisive barrier today, and they expect it to remain so.

Stock market performance reflects this strain. Vonovia’s shares fell roughly 9.4% in the first nine months of 2025, even as the DAX40 climbed nearly 20% over the same period, and were down materially over 12 months. Aroundtown, despite reporting a strong profit turnaround, saw its stock trade lower by around 7% on key updates. Residential specialists such as LEG Immobilien and TAG Immobilien, with what had been a performance advantage for housing specialists, have likewise lagged broader indices, consistent with weak sentiment across the sector. These individual performances illustrate the broader trend of listed real estate names underperforming while the broader market powered ahead.

A 46.8% average discount to NAV underlines the sector’s predicament. In normal circumstances such a gap would draw value investors. Today it signals something different: recapitalisation constraints, uncertainty over refinancing rounds and doubts that current book values fully capture future capex needs. For office-heavy or legacy portfolios, the route back to NAV is viewed as long and uneven.

Jens Hecht, managing partner at Kirchhoff Consult, captured the tension: “Subdued transaction activity and high financing costs are weighing noticeably on sentiment, even as many real estate stocks trade well below their net asset values.” He added that weaker sentiment among residential companies shows how widely the headwinds are being felt, and that this is pushing attention toward the medium term. Once conditions normalise, he argued, the valuation gap may begin to look like an opportunity.

Residential remains the strongest segment, although sentiment has softened sharply. At 41 points it is comfortably above commercial’s 36.9, but far below the 69.7 recorded in the previous survey. Demand for housing, rent growth and demographic drivers still support residential equities, reflected in a three-year performance of 23.8%. But refinancing costs, expiring interest rate hedges and political intervention in rents increasingly dilute the sector’s defensive reputation.

Commercial real estate faces deeper structural strain. Offices and retail remain the weak points. Oversupply in B and C locations, slower leasing, ESG-driven capex requirements and widening yield gaps relative to lender expectations all weigh on sentiment. These pressures are now viewed as structural rather than cyclical, and listed names exposed to secondary offices face prolonged deleveraging.

Medium-term outlook: demand recovers, but capital costs rule the cycle

The survey offers one notable bright spot. Analysts do not expect weak demand to remain a defining constraint. While 71% cite demand as a drag today, most no longer view it as critical over the next three years. Housing demand remains structurally strong. Retail is stabilising in necessity-driven formats. Even offices show early signs of finding a floor in prime CBD locations.

This shift matters. It suggests that the underlying engines of the market remain intact beneath the financing noise: demographic pressure in housing, dense urban logistics demand, and the continued resilience of necessity-based retail.

But the challenges expected to dominate the next phase are the heavy ones. Analysts point to financing costs, regulation and ESG obligations as the central forces shaping performance. Each is cited by roughly three quarters of respondents as a rising medium-term constraint. This marks a decisive shift: the next part of the cycle will be determined less by demand recovery and more by how companies manage capital structures, navigate political and regulatory shifts, and fund the necessary upgrades to meet tightening sustainability requirements.

For listed companies, especially those with refinancing peaks ahead, the implications are clear. Balance-sheet strength, terming out debt, fixed-rate coverage and credible capex planning will decide outcomes more than rental growth alone.

What the sentiment collapse really signals

For investors, the message of the H2 2025 Sentiment Indicator is direct. Germany’s property recovery is not yet an equity-market recovery, and the deep discounts to NAV reflect unresolved refinancing risk rather than immediate upside. Residential remains the strongest segment, but it no longer escapes sector-wide financing pressure, while commercial assets remain exposed to structural oversupply, weaker secondary locations and unavoidable capex demands. Above all, the cost of capital - rather than tenant demand - will determine the winners of the next cycle.

Medium-term upside is possible once financing conditions stabilise and NAV gaps narrow. But for now, the listed real estate sector remains in the hardest part of its adjustment: firmer fundamentals overshadowed by balance-sheet strain. In 2025, the property market may have been finding its floor, but equity investors are not yet ready to believe the sector can climb out.