The UK vote to leave the EU sent property share prices spiralling downwards in the UK immediately after the news was announced, but Irish, German and Swiss stocks have so far escaped relatively unscathed.
The timing was perfect. Two days before the victory of the Leave camp in the UK referendum, Hibernia, an Irish REIT focused on commercial property with a portfolio worth 928 mln, received full planning permission for the redevelopment of Harcourt Square. 'This is an important step in our plans to deliver nearly 26,000 m2 of new offices in a prime central Dublin location,' Hibernia CEO Kevin Nowlan said.
The green light given by the Dublin city council helped buoy Hibernia's shares in the tidal wave that washed over the global stock markets the day after it emerged that the Brexit camp had won the referendum. While UK property stocks like British Land, Derwent London and Great Portland Estates shed more than 20%, Hibernia lost only 3.8% and and its share price began to recover the next trading day. It finished 0.9% up on Tuesday.
Irish stocks well positioned
Thanks to the redevelopment in Harcourt Square, Hibernia as well as Green REIT, another Dublin-based real estate investment trust with a commercial property portfolio of some €1.2 bn in Ireland, are 'well- positioned to be potential Brexit winners,' according to Helmut Kurz, REIT fund manager at Stuttgart-based private bank Ellwanger & Geiger. 'Should international banks move their operations and employees from London to EU countries, Dublin's office and resi markets stand to benefit due to similar financial market and tax regulations as well as the absence of a language barrier,' he claims.
Although Paris and Frankfurt are even more likely to attract internationals bank, French property stocks shed around 5% after the Brexit vote while German real estate stocks were almost unaffected. Indeed, German and Swiss property stocks gained more than 2% in the month to 27 June, according to GPR data.
'German property stocks benefited once more from their safe-haven status with their commercial and residential portfolios in Europe's strongest economy,' said Georg Kanders, analyst at German private bank, Bankhaus Lampe in Düsseldorf.
Swiss property stocks have also proved resilient with heavyweights such as Swiss Prime Site and PSP Swiss Property even gaining up to 1% after the vote. 'Some investors fleeing into the Swiss franc preferred property stocks due to their attractive dividend yield of up to 4%,' Kurz said.
German stocks likely to gain more
German property stocks are likely to show more gains in the months to come, said Bankhaus Lampe's Kanders. 'The Brexit vote will force the ECB (European Central Bank) to keep interest rates at zero for longer than so far expected, which will make it easy for property companies to refinance maturing loans at almost no cost.'
This should help listed real estate companies to raise profits and dividends in the coming years, he added. 'Investors looking for attractive dividend yields between 3% and 5% with low risk cannot avoid German property stocks,' he said.
However, Kurz believes the strong run of German residential property stocks could end this autumn 'With the Bundestag election of 2017 drawing closer, all major political parties are likely to put tenant protection on their agenda once more and call for a tightening-up of the rental price break.'
This could cause investors to move from resi into commercial property stocks, he added. 'In the long run, commercial property stocks look more appealing,' Kurz said.
UK stocks take a beating
Overall, European property stocks have shed 11.44% so far in June, according to GPR. UK stocks have taken the heaviest beating with an average loss of 27.83% in euro terms. UK heavyweights took a fresh beating on Monday after plunging into the red on Friday on the news that Britain is to exit the EU. But the majority recovered terrain on Tuesday and bounced back again in early trading.
One UK property stock that will likely be less affected by the Brexit compared to its peers is Hansteen, Kurz said. The company has a portfolio comprising 494 commercial real estate units with a combined value of €1.8 bn in the UK and on the Continent. Only 41.3% of its annual rental income of €144.4 mln is generated in the UK, while 40.9% stems from Germany and 17.7% from properties in Belgium, France and the Netherlands.
As a result, share prices of Hansteen fell by 'only' 10.2% in the first two trading days after the Leave vote, and closed up 2.3% on Tuesday.
In any case, some experts believe fears of an exodus of banks from London in the near future may be exaggerated. 'Financial institutions will not spend millions of euros to relocate operations into the EU before the details of the Brexit are hammered out,' said Thomas Veraguth, head CIO Swiss & Global Real Estate Strategy at UBS. 'Since the negotiations will probably last at least two years, there is no imminent danger of rental losses for owners.'
