Investing.com — European real estate stocks have slid sharply since late February, leaving valuations levels last seen during the 2009 financial crisis, as rising bond yields and widening credit spreads pressure the sector, Goldman Sachs said on Monday.
The sector has fallen about 14% since Feb. 27 and now trades at a roughly 40% discount to 12-month forward net tangible assets, well above its long-term average discount of 19% since 2000, the brokerage said. Earnings yields have risen to 8.1%, compared with a historical average of 5.9%.
The selloff follows a surge of 40-70 basis points in UK and European 10-year bond yields and an 18 basis point widening in credit spreads after the outbreak of conflict in the Middle East.
Goldman Sachs downgraded its macro outlook, cutting its 2026 euro area growth forecast to 0.7% and UK growth to 0.6%, while raising inflation projections modestly. The European Central Bank is expected to raise rates twice more by June, while the Bank of England is seen holding rates steady.
Despite the weaker backdrop, Goldman said valuations now appear attractive. The sector trades at 13.5 times forward earnings, among the lowest across European industries on a historical basis. The brokerage estimates about 20% average upside to current share prices after cutting price targets by 6% to reflect higher funding costs.
Goldman upgraded and to “buy,” citing strong occupancy, resilient rental growth and balance sheet improvements. It downgraded to “sell” on weakening occupancy and slowing rent growth, and reinstated Lumo Homes at “neutral.”
Earnings remain relatively insulated from near-term rate increases due to high hedging levels, with an average 87% of debt hedged across the sector. A 25 basis point rise in rates would reduce earnings per share by about 0.6% on average, Goldman said.
However, asset valuations remain sensitive to yields. A 10 basis point increase in property yields would cut net tangible asset estimates by around 3%, with more leveraged companies facing larger declines.
Rental growth has moderated as inflation eases, averaging 2.9% in 2025, down from the previous year. Logistics assets have outperformed offices and retail in the UK, benefiting from stronger pricing power.
Among subsectors, Spanish real estate and retail have led performance this year, while German residential and student housing have lagged. Low-leverage companies have outperformed higher-leverage peers.
European real estate investment volumes rose 13% in 2025 to 241 billion euros, signalling some recovery in activity despite tighter financial conditions.
Goldman maintains 14 “buy” and four “sell” ratings across the sector, highlighting select opportunities despite continued macroeconomic uncertainty.