Adler/Aggregate/Accentro - comment

German Residential Real Estate valuations (as bellwether for European) continue to divide markets. The two arguments run as follows:

RE experts: Inflation allows for higher rents as a squeeze on disposable income buffers the lag to wage rises. European rate rises will simultaneously lag inflation and so if anything the environment will be positive.

HY experts: Rents cannot be raised any further as real income is falling and we may be headed for recession. Vonovia’s guidance of 4% annual rate rises will not be realistic.

Naturally, the bullish RE players are more long-term invested in RE than their cautious HY investors. So the role play is set.

How to play: RE players know the RE market better, so while motivated, fundamentally could be right, but will fail to convince HY investors until they have evidence. Evidence will take time, so no rush now.