Vonovia shares fall after biggest ever loss

Shares of German property giant Vonovia fell more than 7% on Friday, shining a light on a deepening real estate crisis in Europe’s largest economy.

The residential real estate company on Thursday reported an annual loss of 6.76 billion euros ($7.37 billion) for 2023, citing a decreasing valuation trend that “significantly weakened” over the course of the year.

This was more than 10 times the size of the 669.4 million euro loss reported a year earlier, which in itself marked an abrupt end to years of consecutive annual profits.

A sharp rise in interest rates and soaring energy and building costs have hit the German property sector hard, with the country’s real estate industry in the grip of its worst crisis for several years.

In the 2023 fiscal year, Vonovia said it had taken total value adjustments of around 10.7 billion euros across its portfolio of more than 500,000 properties. The company added that the value of its properties at the end of last year, when adjusted to reflect investments, had fallen to around 81.1 billion euros.

“The collapse of valuations is the worst we have ever seen,” Vonovia CEO Rolf Buch told reporters on Thursday evening, according to Reuters.

Looking ahead, Vonovia’s CEO said in the firm’s annual report that while the “overall framework will remain challenging” in 2024, a number of positive trends suggested that the investment climate was starting to improve.

“A growing number of analysts are confident that values may have bottomed out now, and many are expecting the first interest rate cut as early as this year, seeing that inflation has reached its lowest level for two and a half years,” Buch said in a statement.

“These are important signals for us. Once the market has stabilised, we will shift our focus back to an increase in earnings.”

Germany’s property sector is a core pillar of Europe’s largest economy, with about 800,000 companies and roughly 3.5 million employees, according to the ZIA industry association.

One analyst told CNBC on Friday that the outlook for Vonovia appeared supportive over the coming months.

“Specifically on Vonovia, what I find pretty interesting is that the wording of the CEO about price correction is very, very excessive in my view because we have had what a 10% to 15% decline in house prices in Germany? That’s not the end of the world,” Arnaud Girod, head of economics and cross-asset strategy at Kepler Cheuvreux, told CNBC’s “Squawk Box Europe” on Friday.

“But more interestingly, I think that we have had huge supply issues in Europe overall on residential housing before this interest rate cycle started so now that we have had about two years of very, very low new build, you can say that this housing shortage is going to get worse — not better,” Girod said.

“Unfortunately for people, I think housing is still going to be expensive and that is very supportive for companies such as Vonovia in that space. Their asset value is unlikely to decline very much from here.”

The French brokerage firm has an overweight view on Europe’s real estate sector.