GS Real Estate – M&A on the rise; 4 rating changes

Investing.com -- Goldman Sachs analysts see rising M&A activity in European real estate as valuations remain deeply discounted despite headwinds from higher bond yields. 

"YTD European RE M&A volumes are up 40% yoy," said Goldman Sachs, pointing to increased investor interest in the sector.

The Stoxx 600 Real Estate index has underperformed the broader Stoxx 600 by 11% year-to-date, primarily due to higher bond yields. 

However, Goldman Sachs noted that rental growth is accelerating in certain under-supplied sub-sectors, helping to cushion the impact of rising rates. 

The firm still expects 4% average NTA per share growth in 2025, though it has lowered its 2025/26 estimates by 2-3% to account for a 10-basis-point yield expansion in 2025.

Despite challenges, the sector trades at a discount. "Our coverage trades at a significant 38% discount to its 12m fwd NTA (vs 16% LT avg) and at a 7.9% average 12m forward EPS yield (vs. its 5.8% LT avg)," said Goldman Sachs.

This discount is said to imply a 17% average upside for stocks under coverage.

In response to market conditions, Goldman Sachs made four rating changes. The firm upgraded Grand City Properties to Buy from Neutral and Hammerson (LON:HMSO) to Neutral from Sell. 

Conversely, it downgraded Covivio to Sell from Neutral and Supermarket Income REIT (LON:SUPR) to Neutral from Buy.

The firm highlighted structural themes driving returns, including logistics growth, AI-led demand for data centers, and the under-supply of German residential and UK student housing. 

However, it remains cautious on office stocks, warning that weak occupier demand, oversupply, and rising capex needs could pressure valuations further.

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