Weakening Office Demand Will Shrink Margins Despite Green Transitions

AN
AnalystLowTarget
AnalystLowTarget
Not Invested
Consensus Narrative from 15 Analysts
Published
07 Jul 25
Updated
24 Jul 25
AnalystLowTarget's Fair Value
€2.00
60.0% overvalued intrinsic discount
24 Jul
€3.20
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1Y
66.8%
7D
0.9%

Author's Valuation

€2.0

60.0% overvalued intrinsic discount

AnalystLowTarget Fair Value

Key Takeaways

  • Weakened office demand, demographic shifts, and stricter environmental rules threaten revenue growth, property values, and increase pressure on profit margins.
  • Substantial capital needs for compliance, refinancing risk, and required modernization investments are likely to erode cash flow and returns to shareholders.
  • Persistent real estate demand, sustainability focus, asset value recovery, selective portfolio management, and effective refinancing are reinforcing profitability, cash flow strength, and long-term financial resilience.

Catalysts

About Aroundtown
    Operates as a real estate company in Germany, the Netherlands, the United Kingdom, Belgium, and internationally.
What are the underlying business or industry changes driving this perspective?
  • The structural rise of hybrid and remote work across Europe is expected to significantly undermine long-term demand for office space, directly threatening occupancy rates and limiting rental growth potential for Aroundtown's core office portfolio, which comprises 38% of assets and remains heavily concentrated in cities where this trend is especially pronounced. As office demand weakens and lease renewals lag, both revenue and net margins are at risk of prolonged stagnation or decline.
  • Persistently higher interest rates and elevated cost of capital are likely to continue pressuring property valuations and driving up refinancing expenses for highly leveraged companies such as Aroundtown. Despite slight recent improvements, the company remains exposed to refinancing risk, and a structurally higher rate environment threatens both net profit and increases the likelihood of future asset impairments.
  • Although the company highlights progress in green certifications, tightening environmental regulation and accelerated ESG requirements across Europe will force Aroundtown to invest substantial additional capital into property upgrades just to remain compliant. These growing capital expenditures will compress margins and materially reduce free cash flow, with a near-term likelihood of further dividend suspensions.
  • The aging demographics and slower pace of urbanization in Germany and broader European markets point to subdued population growth and reduced structural demand for both commercial and residential real estate. Aroundtown's hopes for long-term rent increases and asset appreciation thus appear increasingly optimistic, implying a sustained drag on revenue growth and property values.
  • Rising technological disruption and evolving tenant expectations necessitate continuous and costly investments into digitalization, proptech, and flexible workspaces. This ongoing reinvestment burden, together with the risk that asset repositioning fails to fully offset weakened market demand, is likely to weigh on profitability and erode returns on equity over the medium term.

Aroundtown Earnings and Revenue Growth

Aroundtown Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • This narrative explores a more pessimistic perspective on Aroundtown compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
  • The bearish analysts are assuming Aroundtown's revenue will decrease by 0.3% annually over the next 3 years.
  • The bearish analysts assume that profit margins will increase from 15.1% today to 24.6% in 3 years time.
  • The bearish analysts expect earnings to reach €365.7 million (and earnings per share of €0.27) by about July 2028, up from €226.1 million today. The analysts are largely in agreement about this estimate.
  • In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 7.9x on those 2028 earnings, down from 15.3x today. This future PE is lower than the current PE for the DE Real Estate industry at 18.5x.
  • Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 9.93%, as per the Simply Wall St company report.

Aroundtown Future Earnings Per Share Growth

Aroundtown Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Persistent urbanization and population growth in major European cities such as Berlin, London, Munich, and Frankfurt is maintaining strong demand for both commercial and residential real estate, supporting low vacancy rates, solid rental growth, and contributing to the company's stable and growing revenues.
  • Accelerating progress in green certification, with over 50% of Aroundtown's commercial portfolio now certified and ongoing investments in sustainability, positions the company to attract premium tenants and benefit from regulatory incentives, which can help drive higher rents and improve the company's net margins in the long run.
  • Recovery in asset values and positive valuation momentum since H2 2024 are continuing into 2025, which has resulted in positive revaluation gains and an increase in EPRA NTA per share, strengthening the company's balance sheet and supporting future earnings growth.
  • Ongoing asset rotation and portfolio optimization, including successful disposals at or above book value and targeted acquisitions of high-yielding, mismanaged properties, allow Aroundtown to focus on high-quality, resilient assets, improving rental yields and long-term returns on equity that increase profits and cash flow stability.
  • Proactive refinancing at lower coupons amid a declining interest rate environment, enhanced by strong investor demand and an over-subscribed bond issuance, has significantly reduced finance costs and extended debt maturities, supporting net profit growth and ensuring robust liquidity and capital allocation flexibility.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The assumed bearish price target for Aroundtown is €2.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Aroundtown's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  • However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €4.0, and the most bearish reporting a price target of just €2.0.
  • In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €1.5 billion, earnings will come to €365.7 million, and it would be trading on a PE ratio of 7.9x, assuming you use a discount rate of 9.9%.
  • Given the current share price of €3.16, the bearish analyst price target of €2.0 is 58.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystLowTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystLowTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystLowTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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