European office real estate companies are in a “real storm” of headwinds, according to the recommendations of the analyst BofA

On the Paris Stock Exchange, Icade and Covivio recorded the strongest falls in this session on Wednesday, followed by Gecina. It’s all real estate, a sector that has fallen out of favor in the eyes of Bank of America Merrill Lynch analysts. For the Anglo-Saxon research office, the value of European real estate is in ” truth storm headwinds.

Of the ten real estate companies followed by the broker, eight said their recommendations had deteriorated, and only two had a growing opinion. We are talking about the impact of balance sheet costs, the risks of stagflation and ” extreme polarization between, on the one hand, high demand for green sites or facilities with flexible use, on the one hand, and traditional offices, on the other, in an environment where credit rates and spread rates have returned to levels that have not been for a decade.

Keep track of dividends …

According to BofA forecasts, prices for office space should fall by 12%. Dividends paid by real estate companies, which is one of the attractions of this sector, must suffer from this combination of negative elements.

Icade bears the brunt of this wave of reviews of recommendations, which have been downgraded by two notches to “low” due to the use of leverage by office real estate and for which the security analyst predicts possible funding difficulties. In this segment, marketing time is also longer than before the health crisis. It is also influenced by the development of telecommuting, which has now become part of our lives and the way we do business. Therefore, beware of excess goods, and the number of surfaces in the warehouse can be reduced only at the end of each lease.

… And refinancing needs

British Land, Covivio, Colonial and Workspace were also downgraded to Bank of America Merrill Lynch’s “low productivity” based on the risk / return ratio that is considered ” unattractive Land Securities and Gecina, present in offices and retail for more than 80% of operations, have been revised from “purchase” to “neutral”, their valuation level is recognized. within reason “.

Only two real estate companies are in this black table compiled by the research office, the Spanish company Merlin Properties, founded in 2014 by former executives of Deutsche Bank, but with almost 50% of its office activities, and PSP Swiss. Property, one of the largest players in this sector in Switzerland. The first case is valued due to the company’s low refinancing needs, the second – for the recent sharp fall in shares. Dewent London is still buying, also considering the low refinancing and leverage needs.

No doubt about the strategy in Covivio

Yesterday, Invest Securities also reported on Covivio after the death of Leonardo Del Vecchio, the founder of Luxottica and the head of the second largest state in Italy ($ 25.1 billion for Forbes). He is Covivio’s largest shareholder with 27.2% of the capital through his family holding Delfin. For the research office, this death does not seem to call into question the strategy.

In a telephone contact, Covivio also stressed that the family holding company Delfin has autonomous managementreminds Invest Securities. Leonardo Del Vecchio’s fortune will be shared by his wife Nicoletta Zampillo, who will inherit 25% of Delfin, and his six children (12.5% ​​each). As far as we know, there is no financial pressure that could force the Del Vecchio family to sell their shares in the short term, which is less than 6% of marital status. »