Goldman says higher interest rates could dent this real-estate firm

Investing.com - European real estate is navigating a somewhat more challenging landscape as interest rates climb, though the broader regional market is not facing immediate distress, according to analysts at Goldman Sachs.

In a note to clients, the analysts—including Jonathan Kownator and Kuber Sood—characterized the mood across the sector as "slightly cautious."

They nonetheless pointed out that funding remains accessible for real-estate companies with "good opportunities," even as investors now demand higher returns before committing capital. The overall outlook remains broadly supportive for European property owners, with rents on the rise and a slowdown in new construction entering the local market, they said.

The Goldman analysts flagged that market participants view logistics as the strongest segment for demand and rental growth, particularly as new warehouse supply has tumbled by roughly 50%.

Data centers—which have gained increasing prominence as companies channel significant investment into building out artificial intelligence infrastructure—are seeing especially robust demand, notably in the U.K. and Spain, the analysts noted. Hotels are also considered to offer "strong rental growth potential," they added.

Yet with interest rates likely heading upward, partly due to mounting inflation stemming from the Iran war, real-estate firms carrying larger debt burdens could face heightened pressure, they cautioned.

Against this backdrop, Goldman turned more positive on Covivio, upgrading its rating to "buy" from "neutral," citing stronger rent growth driven by its hotel portfolio.

Vonovia, on the other hand, was downgraded to "neutral" from "buy," with the Goldman analysts emphasizing that rising borrowing costs have undermined the company's strategy of investing heavily in properties to generate rental income. Regulatory uncertainty surrounding residential rents in Berlin has also raised doubts about Vonovia's capacity to execute its aggressive investment plans, they said.