GERMANY - Analysts this week detected early signs of investor concern over "euphoria" in the German property market as investors focus on hitherto hidden risks.
The ZitelmannPB Real Estate Stock Barometer of 14 analysts' views of the German market identified "sombre" sentiment of -0.1 for the next three months, compared with +0.4 in May.
The forecast for the next 12 months stabilised at +0.9 - short of the +2 that would suggest anticipation of price increases above 15%.
Only two of the analysts polled expected to see price increases between 5% and 15% over the next three months.
In an indication that at least some investors are re-thinking an overly bullish approach to German commercial, Steffen Sebastian, a real estate finance professor at IREBS International Real Estate Business School, forecast shares in residential companies would rise as yields commercial became less attractive.
"Everyone is in housing - commercial is in a different cycle," he said. "One thing is sure. We'll see lots of overreactions across the market. In some segments, such as housing, we've already seen overreactions, with everyone buying housing."
He added: "Housing was out of question for centuries, especially high-quality housing, because the portfolios are too small. Now everyone is in housing - and not just in Germany, but in France and the UK."
Yet the barometer revealed negative sentiment for residential as well.
The three-month barometer anticipated a record low of +0.1, with only three analysts expecting prices above 15%.
GSC Research analyst Matthias Schrade was an exception, forecasting greater medium-term opportunities in residential than commercial, which he said would be hit harder by an economic downturn.
Meanwhile, THProjektmanagement managing director Thomas Herr urged investors to focus on "furtive" risks in the development market, including construction-related cost increases of 15% since 2009.
In a note this week, Herr undermined "a certain euphoria" in the German real estate market, including bullish developer sentiment as a result of supply shortages in high-demand locations pushing up rents.
Yet production costs above the European average continue on an upward trend, driven by rising prices in labour, energy and raw materials.
Herr also pointed to land transfer tax increases that made the acquisition of development sites more expensive, in addition to substantially increased building land prices in prime locations.