The quarterly results of listed companies are starting to pour in, always providing an interesting barometer of the health of the economy in general, and real estate in particular.
While the initial operating figures for local real estate companies are more than respectable, it has to be said that they are not really being reflected in share prices. The safe-haven value attributed to real estate has become a value shunned by investors.
So, should we take a new approach to valuing real estate at its fair value? Laurent Saint Aubin, Director of Equity Management at Sofidy, suggests taking inspiration from the future growth model, which remains one of the pillars of stock market valuation.
We should no longer look at a property company's share price solely in terms of its premium or discount on its net asset value, but rather take into account its PER (Price-Earnings Ratio). In other words, its ability to generate future growth and thus anticipate future value creation.
Why change focus? Because listed real estate seems to be struggling structurally, with an average NAV discount of over 28% in Europe. Because real estate companies seem to be trapped by their sensitivity to interest rates, even though the debt wall is no longer an issue for most of them. Because hoping for a rebound in values through interest rates alone has become a pipe dream.
Value creation is, and must remain, the core business of real estate companies. Laurent Saint Aubin takes the example of Unibail-Rodamco-Westfield, which created 42% value on the Trinity tower at La Défense. What's possible with a reviled asset - office space - in an area that is currently cursed - La Défense - augurs well for the future if we look at other asset segments and other geographical areas.
Especially as real estate is only one of the underpinnings of the economy. If AI is driving growth worldwide and in Europe, it's in data centers that we need to invest. If reindustrialization accelerates in Europe as a result of the United States' tariff policy, investors and developers of logistics platforms become opportunities. If the return to office space is confirmed, it may be time to position oneself in tertiary real estate, focusing on those with assets located in hyper-city centers.
The key to this stock-picking is the promise of double performance: a solid rental yield (5.5% on average) and a return on capital that reflects this value creation.
If we add a few technical adjustments, such as the relaxation of Solvency II rules for investment in listed real estate, we may be at the dawn of a new cycle. A cycle of growth, of course, which would once again make real estate investment an attractive asset allocation. There's still a long way to go, I agree.