• German residential landlords have outperformed in past 3 years
  • Property prices are rising faster than rents in German cities

German residential landlords rose, bucking a decline in European stocks, as investors flocked to companies offering refuge from the U.K.’s decision to leave the European Union. Vonovia SE climbed as much as 4.1 percent as Morgan Stanley raised its rating on the shares.

Vonovia, the country’s largest landlord, was up 3.7 percent at 32.65 euros as of 1:29 p.m. in Frankfurt trading, making it the biggest gainer on the benchmark DAX Index. Competitors Deutsche Wohnen AG and LEG Immobilien AG rose the most on the MDAX Index for mid-sized companies, adding as much as 2.6 percent and 1.8 percent, respectively.

The rally follows declines on Friday that were smaller than the market average as a sell-off in the Stoxx Europe 600 has taken broader index losses to almost 10 percent since U.K. voters opted to leave the EU on June 23. Landlords with properties in Germany’s biggest cities will benefit from increased demand for housing if employers move workers from London to other European cities, said Peter Barkow, managing director at Barkow Consulting in Dusseldorf. Declining interest rates, which shrink financing costs, are also boosting the stocks, he said.

‘Largely Intact’

"The German residential story is largely intact despite significant political and economic uncertainty," Morgan Stanley analyst Bianca Riemer wrote in a note to clients on Monday in which she increased her rating on Vonovia’s stock to buy from hold.

German residential landlords have outperformed other industries over the past three years as investors seek to benefit from rising rents and home values in continental Europe’s biggest housing market. The EPRA’s Developed Europe Residential Index -- whose members are mostly German -- has returned more than 90 percent since the end of 2013. That compares with a 34 percent gain on EPRA’s broader property index and a 4 percent increase on the Stoxx Europe 600 in the same period.

Vonovia owns about 340,000 apartments rented to low and middle-income earners in cities such as Dortmund and Dresden, while Deutsche Wohnen has more than 150,000 units, mostly in Berlin and around Frankfurt.

Rents in Germany’s biggest cities have risen six percent in the past two years, while property prices have increased 11 percent, according to data compiled by online broker ImmobilienScout24.

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